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Estimating Marginal Costs and Market Power in the Italian Electricity Auctions

Bruno Bosco (), Lucia Parisio () and Matteo Pelagatti ()
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Bruno Bosco: Department of Legal and Economic Systems, Università degli Studi di Milano-Bicocca

No 20100201, Working Papers from Università degli Studi di Milano-Bicocca, Dipartimento di Statistica

Abstract: In this paper we examine the bidding behaviour of firm competing in the Italian wholesale electricity market where generators submit hourly supply schedule to sell power. We describe the institutional characteristics of the Italian market and derive generators' equilibrium bidding functions. We also discuss the main empirical strategies followed by the recent econometrical literature to obtain estimates of (unobservable) optimal bids. Then, we use individual bid data, quantity volumes and other control variables to compare actual bidding behaviour to theoretical benchmarks of profit maximization. We obtain estimates of generators' costs to be used in conjunction with hourly market equilibrium prices to derive some measures of the extent of market power in the Italian electricity sector and of its exploitation by firms.

Keywords: Bidding behaviour in Electricity markets; Estimates of optimal bid functions; Measures of market power (search for similar items in EconPapers)
JEL-codes: D24 L13 L41 L94 L98 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene
Date: 2010-02
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http://www.statistica.unimib.it/utenti/WorkingPapers/WorkingPapers/20100201.pdf First version, 2010 (application/pdf)

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Persistent link: http://EconPapers.repec.org/RePEc:mis:wpaper:20100201

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