Can a Newly Proposed Mechanism for Allocating Contracts in U.S. Electricity Wholesale Markets Lead to Lower Prices? A Game Theoretic Analysis
This study of the wholesale electricity market compares the cost-minimizing performance of the auction mechanism currently in place in U.S. markets with the performance of a proposed replacement. The current mechanism chooses an allocation of contracts that minimizes a fictional cost calculated using pay-as-offer pricing. Then suppliers are paid the market clearing price. The proposed mechanism uses the market clearing price in the allocation phase as well as in the payment phase. In concentrated markets, the proposed mechanism outperforms the current mechanism even when strategic behavior by suppliers is taken into account. The advantage of the proposed mechanism increases with increased price competition.
|Date of creation:||Apr 2004|
|Date of revision:||Mar 2006|
|Note:||The author would like to thank the National Science Foundation, under grant ECS# 0323685 for financial support. The author is grateful to the Engineering and Economics faculty and students at the University of Connecticut and Harvard working on the electricity project, the PI on the grant Peter Luh, David Pepyne, Shi-Chung Chang, William Blankson, Nicholas Shunda, Rimvydas Baltaduonis, Ying Chen, Feng Zhao and Yaming Ma. The author would like to thank in particular Peter Luh and William Blankson for explaining the MCP algorithm to her. The author would also like to thank Dan Kovenock for helpful comments on an earlier version of the paper entitled, "Strategic Behavior in Electricity Wholesale Markets" (2004).|
|Contact details of provider:|| Postal: University of Connecticut 365 Fairfield Way, Unit 1063 Storrs, CT 06269-1063|
Phone: (860) 486-4889
Fax: (860) 486-4463
Web page: http://www.econ.uconn.edu/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lawrence M. Ausubel & Peter Cramton, 1995.
"Demand Reduction and Inefficiency in Multi-Unit Auctions,"
Papers of Peter Cramton
98wpdr, University of Maryland, Department of Economics - Peter Cramton, revised 22 Jul 2002.
- Lawrence M. Ausubel & Peter Cramton & Marek Pycia & Marzena Rostek & Marek Weretka, 2014. "Demand Reduction and Inefficiency in Multi-Unit Auctions," Review of Economic Studies, Oxford University Press, vol. 81(4), pages 1366-1400.
- Le Coq, Chloé, 2002. "Strategic use of available capacity in the electricity spot market," SSE/EFI Working Paper Series in Economics and Finance 496, Stockholm School of Economics.
- Supatgiat, Chonawee & Zhang, Rachel Q & Birge, John R, 2001. "Equilibrium Values in a Competitive Power Exchange Market," Computational Economics, Society for Computational Economics, vol. 17(1), pages 93-121, February.
- Alfred E. Kahn & Peter Cramton & Robert H. Porter & Richard D. Tabors, 2001. "Pricing in the California Power Exchange Electricity Market: Should California Switch from Uniform Pricing to Pay-as-Bid Pricing?," Papers of Peter Cramton 01calpx, University of Maryland, Department of Economics - Peter Cramton, revised 27 Jan 2001.
- Stephen Spear, .
"The Electricity Market Game,"
GSIA Working Papers
2003-E17, Carnegie Mellon University, Tepper School of Business.
When requesting a correction, please mention this item's handle: RePEc:uct:uconnp:2004-41. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark McConnel)
If references are entirely missing, you can add them using this form.