Optimal Bidding for a Bundle of Power Transmission Infrastructure Works

Andres Hernando, Mauricio Villena and Valentina Apablaza

MPRA Paper from University Library of Munich, Germany

Abstract: We put forward an optimal bidding mechanism for a bundle of power transmission infrastructure works. Specifically, the regulator auctions two works altogether: one is to be developed and operated by the winning bidder, while the other is an owner-operated and financed expansion of an existing work. Participants bid jointly for both contracts, and the package is awarded based on the lowest total bid. The costs are divided into a common developing part for all participants and a private part related to financing. The optimal bidder offers the expected value of the costs, adjusted for the cost advantage over the second lowest bidder. This approach efficiently allocates the works to the firm with the lowest combined costs. However, rents persist due to the informational and cost advantage in financing. When a bidder expects higher costs, it requests a higher payment, which reduces its chances of winning the bid.

Keywords: Auctions; Procurement bidding; Infrastructure works bundling; Electric transmission infrastructure (search for similar items in EconPapers)
JEL-codes: D44 H42 H57 L94 (search for similar items in EconPapers)
Date: 2023-12-09, Revised 2024-04-30
New Economics Papers: this item is included in nep-ene and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:120849

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