Economics at your fingertips  

Complementary Bidding Mechanisms and Startup Costs in Electricity Markets

Mar Reguant ()

Review of Economic Studies, 2014, vol. 81, issue 4, 1708-1742

Abstract: I extend multi-unit auction estimation techniques to a setting in which firms can express cost complementarities over time. In the context of electricity markets, I show how the auction structure and bidding data can be used to estimate these complementarities, which in these markets arise due to startup costs. I find that startup costs are substantial and that taking them into account helps better explain firm bidding strategies and production patterns. As in other dynamic settings, I find that startup costs limit the ability of firms to change production over time, exacerbating fluctuations in market prices. These fluctuations can induce estimates of market power that ignore dynamic costs to overstate markup volatility, with predicted markups that can be even negative in periods of low demand. I show how accounting for startup costs can provide a natural correction for these markup biases.

Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (18) Track citations by RSS feed

Downloads: (external link) (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Review of Economic Studies is currently edited by Andrea PratEditor-Name: Bruno BiaisEditor-Name: Kjetil StoreslettenEditor-Name: Enrique Sentana

More articles in Review of Economic Studies from Oxford University Press
Bibliographic data for series maintained by Oxford University Press ().

Page updated 2020-03-31
Handle: RePEc:oup:restud:v:81:y:2014:i:4:p:1708-1742