Bidding and Investment in Wholesale Electricity Markets: Discriminatory versus Uniform-Price Auctions

Bert Willems and Yueting Yu
Additional contact information
Yueting Yu: Tilburg University

No 2023023, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We compare uniform and discriminatory-price auctions in wholesale electricity markets, studying both long-run investment incentives and short-run bidding behaviors. We develop a monopolistic competition model with a continuum of generation technologies ranging from base load to peak load, free entry and uncertain elastic demand. Our findings reveal that discriminatory-price auctions are inefficient because consumers’ willingness to pay exceeds the marginal costs and investment incentives are distorted. Despite having an equal total installed capacity, the generation mix under discriminatory-price auctions skews towards a shortage of base-load technologies. Consequently, this results in a lower long-run consumer surplus.

JEL-codes: D44 D47 L94 (search for similar items in EconPapers)
Pages: 36
Date: 2023-08-31
New Economics Papers: this item is included in nep-com, nep-ene and nep-reg
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Working Paper: Bidding and Investment in Wholesale Electricity Markets: Discriminatory versus Uniform-Price Auctions (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2023023

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