Spot Market Competition in the UK Electricity Industry

Nils-Henrik von der Fehr and David Harbord

Economic Journal, 1993, vol. 103, issue 418, 531-46

Abstract: With particular reference to the structure of the U.K. industry, price competition in a deregulated wholesale market for electricity is modeled as a sealed-bid multiple-unit auction with a random number of units. It is argued that, under the existing regulatory rules, one must expect volatile prices, above marginal cost pricing, and inefficient dispatching. Evidence from the pricing performance of the U.K. industry is presented and shown to be compatible with the model predictions. The authors also discuss alternative regulatory rules and show that offering to supply at marginal cost can be induced as a dominant strategy for all generators, thereby securing efficient dispatching. Copyright 1993 by Royal Economic Society.

Date: 1993
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