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.

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Year of publication:	2004-04
Authors:	Knoblauch, Vicki
Institutions:	Department of Economics, University of Connecticut
Subject:	strategic behavior \| multi-unit auction \| electricity \| Bertrand competition

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Extent:	application/pdf
Series:	Working papers.
Type of publication:	Book / Working Paper
Language:	English
Notes:	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). The price is Free Number 2004-41 15 pages
Classification:	C72 - Noncooperative Games ; D44 - Auctions ; L10 - Market Structure, Firm Strategy, and Market Performance. General ; L94 - Electric Utilities
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005800268