Do pay-as-bid auctions favor collusion? Evidence from Germany's market for reserve power

Sven Heim and Georg Götz

No 13-035, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: We analyze a drastic price increase in the German auction market for reserve power, which did not appear to be driven by increased costs. Studying the market structure and individual bidding strategies, we find evidence for collusive behavior in an environment with repeated auctions, pivotal suppliers and inelastic demand. The price increase can be traced back to an abuse of the auction's pay-as-bid mechanism by the two largest firms. In contrast to theoretical findings, we show that pay-as-bid auctions do not necessarily reduce incentives for strategic capacity withholding and collusive behavior, but can even increase them.

Keywords: Auctions; Collusion; Market Power; Energy Markets; Reserve Power; Balancing Power (search for similar items in EconPapers)
JEL-codes: D43 D44 D47 L11 L13 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-com, nep-ene, nep-eur and nep-hme
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Do Pay-As-Bid Auctions Favor Collusion? Evidence from Germany's market for reserve power (2021)
Working Paper: Do Pay-As-Bid Auctions Favor Collusion? Evidence from Germany's market for reserve power (2021)
Working Paper: Do pay-as-bid auctions favor collusion? - Evidence from Germany’s market for reserve power (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:13035

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