Price and quantity discovery without commitment

Stefan Bergheimer, Estelle Cantillon and Mar Reguant

International Journal of Industrial Organization, 2023, vol. 90, issue C

Abstract: Wholesale electricity markets solve a complex allocation problem: electricity is not storable, demand is uncertain, and production involves dynamic cost considerations and indivisibilities. The New Zealand wholesale electricity market attempts to solve this complex allocation problem by using an indicative price and quantity discovery mechanism that ends at dispatch. Can such a market mechanism without commitment provide useful information? We document that indicative prices and quantities are increasingly informative of the final prices and quantities and that bid revisions are consistent with information-based updating. We argue that the reason why the predispatch market is informative despite the lack of commitment is that it generates private benefits in terms of improved intertemporal optimization of production plans.

Keywords: Electricity markets; Price discovery; Pre-play communication; Non-trading mechanisms; Coordination; Intertemporal optimization (search for similar items in EconPapers)
JEL-codes: D47 D83 G14 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:90:y:2023:i:c:s0167718723000681

DOI: 10.1016/j.ijindorg.2023.102987

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