On the Impact of Forward Contract Obligations in Multi-Unit Auctions

Natalia Fabra and Maria-Angeles de Frutos

No 6756, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Several regulatory authorities worldwide have recently imposed forward contract obligations on electricity producers as a way to mitigate their market power. In this paper we investigate how such contractual obligations affect equilibrium bidding in electricity markets, or in any other auction-based market. For this purpose, we introduce forward contracts in a uniform-price multi-unit auction model with complete information. We find that forward contracts are pro-competitive when allocated to relatively large and efficient firms; however, they might be anti-competitive otherwise. We also show that an increase in contract volume need not always be welfare improving. From a methodological point of view, we aim at contributing to the literature on multi-unit auctions with discrete bids.

Keywords: Forward contracts; Multi-unit auctions; Discrete bids; market power; Electricity; Antitrust remedies; Simulations (search for similar items in EconPapers)
JEL-codes: G13 L13 L94 (search for similar items in EconPapers)
Date: 2008-03
New Economics Papers: this item is included in nep-com, nep-mic and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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