Electricity Markets: Designing Auctions Where Suppliers Have Uncertain Costs

38 Pages Posted: 24 Mar 2016

See all articles by Par Holmberg

Par Holmberg

Research Institute of Industrial Economics (IFN)

Frank Wolak

National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: December 17, 2015

Abstract

We analyse how the market design influences the bidding behavior in multi-unit auctions, such as wholesale electricity markets. It is shown that competition improves for increased market transparency and we identify circumstances where the auctioneer prefers uniform to discriminatory pricing. We note that political risks could significantly worsen competition in hydro-dominated markets. It would be beneficial for such markets to have clearly defined contingency plans for extreme market situations.

Keywords: cost uncertainty, asymmetric information, uniform-price auction, discriminatory pricing, Bertrand game, market transparency, wholesale electricity market, treasury auction, Bayesian Nash equilibria

JEL Classification: C72, D43, D44, L13, L94

Suggested Citation

Holmberg, Par and Wolak, Frank A., Electricity Markets: Designing Auctions Where Suppliers Have Uncertain Costs (December 17, 2015). USAEE Working Paper No. 16-251, Available at SSRN: https://ssrn.com/abstract=2754407 or http://dx.doi.org/10.2139/ssrn.2754407

Par Holmberg (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Frank A. Wolak

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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