Evaluation of a Truthful Revelation Auction in the Context of Energy Markets with Nonconcave Benefits

Benjamin Hobbs (), Michael H. Rothkopf, Laurel C. Hyde and Richard P. O'Neill

Journal of Regulatory Economics, 2000, vol. 18, issue 1, 5-32

Abstract: We describe a Vickrey-Clarke-Groves auction for supply and demand bidding in the face of market power and nonconcave benefits in which bidders are motivated to bid truthfully, and evaluate its use for power and gas pipeline capacity auctions. The auction efficiently allocate resources if firms maximize profit. Simulations, including an application to the PJM power market, illustrate the procedure. However, the auction has several undesirable properties. It risks being revenue deficient, can be gamed by cooperating suppliers and consumers, and is subject to the information revelation and bid-taker cheating concerns that make single item Vickrey auctions rare. Copyright 2000 by Kluwer Academic Publishers

Date: 2000
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