Economics at your fingertips  

An Experimental Study of Complex-Offer Auctions from Wholesale Energy Markets

Rimvydas Baltaduonis

Applied Economics and Finance, 2014, vol. 1, issue 1, 96-115

Abstract: A Payment Cost Minimization auction has been proposed as an alternative to the Offer Cost Minimization auction for use in wholesale electric power markets with an intention to lower procurement cost of electricity. Efficiency concerns have been raised for this proposal while assuming that the true production costs would be revealed to the auctioneer in a competitive market. Using an experimental approach, the study compares the performance of these two complex-offer auctions, controlling for the level of unilateral market power. The analysis finds that neither auction results in allocations that correspond to the true cost revelation. Two auctions perform similarly in terms of procurement cost and efficiency. Surprisingly, consumer prices in a competitive environment approach the prices of an environment with market power. It appears that the expected institutional effects for procurement cost and efficiency are greatly dominated by the effects of anti-competitive behavior due to the offer complexity and a cyclical nature of market demand.

Keywords: avoidable fixed cost; complex-offer auction; cyclical demand; efficiency; electricity; two-part pricing (search for similar items in EconPapers)
JEL-codes: A00 Z0 (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (application/pdf) (text/html)

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

More articles in Applied Economics and Finance from Redfame publishing Contact information at EDIRC.
Bibliographic data for series maintained by Redfame publishing ().

Page updated 2021-10-17
Handle: RePEc:rfa:aefjnl:v:1:y:2014:i:1:p:96-115