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Dynamic and Strategic Behavior in Hydropower-Dominated Electricity Markets: Empirical Evidence for Colombia

Jorge Balat (), Juan Esteban Carranza and Juan D. Martin ()

No 12906, Borradores de Economia from Banco de la Republica

Abstract: In this paper we formulate a dynamic multi-unit auction model to characterize bidding behavior in hydro power dominated electricity markets. Our model implies that, in order to maximize expected profits, hydro producers will submit bid prices above its marginal production costs that account for the intertemporal opportunity cost of water and the expected strategic effects of bids on rivalsâ behavior. We test the predictions of our model against data of the Colombian electricity market, where hydro producers hold 63% of total installed capacity, and find evidence consistent with both dynamic and strategic behavior.

Keywords: Dynamic auction model; Bidding behavior; Market power; Electricity markets. (search for similar items in EconPapers)
JEL-codes: D22 D44 L25 (search for similar items in EconPapers)
Pages: 54
Date: 2015-05-27
New Economics Papers: this item is included in nep-com, nep-ene and nep-lam
References: View references in EconPapers View complete reference list from CitEc
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Working Paper: Dynamic and Strategic Behavior in Hydropower-Dominated Electricity Markets: Empirical Evidence for Colombia (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:col:000094:012906

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