Complementary Bidding Mechanisms and Startup Costs in Electricity Markets

Mar Reguant

No 4811, CESifo Working Paper Series from CESifo

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.

Keywords: auctions with complementarities; electricity markets; startup costs; market power (search for similar items in EconPapers)
JEL-codes: D44 L13 L94 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (100)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp4811.pdf (application/pdf)

Related works:
Journal Article: Complementary Bidding Mechanisms and Startup Costs in Electricity Markets (2014)
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: https://EconPapers.repec.org/RePEc:ces:ceswps:_4811

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().