Strategic withholding in descending clock capacity auctions: a stage-by-stage analysis of the British electricity capacity market

Christopher Doyle

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Capacity markets are increasingly used to secure electricity-system reliability, but their auction designs raise persistent concerns about market power. This paper examines strategic capacity withholding in the British Capacity Market, which procures future capacity through a three-stage process: pre-qualification, disclosure of aggregate qualified supply, and a descending-clock auction with a uniform clearing price. We develop a formal model in which a small number of large portfolio bidders interact with a competitive fringe of uncertain size. The central result is that the same auction rule generates different observable forms of market power depending on bidders’ information about fringe supply: under full information, strategic bidders withhold capacity ex ante by limiting entry at pre-qualification, with no subsequent withdrawal; under imperfect information, capacity may instead be withdrawn after disclosure or during the clock auction as bidders update beliefs about market tightness. The absence of visible in-auction withdrawal is therefore consistent with maximal strategic withholding rather than competitive behaviour. We further derive a closed-form threshold for the per-unit cost of withdrawal: withholding remains profitable even under substantial institutional frictions, and the threshold rises with portfolio size and with the spread between clearing prices in tight and loose market conditions, so strategic withholding is strongest precisely when reliability conditions are most stressed. We relate the framework to recent GB auction outcomes and develop a stage-specific policy taxonomy, highlighting the role of contestability-enhancing reforms alongside direct auction mitigation.

Keywords: auction design; capacity markets; capacity withholding; descending clock auctions; market power; electricity market regulation (search for similar items in EconPapers)
JEL-codes: D44 L94 Q41 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2026-10-31
References: Add references at CitEc
Citations:

Published in Utilities Policy, 31, October, 2026, 102. ISSN: 0957-1787

Downloads: (external link)
https://researchonline.lse.ac.uk/id/eprint/139055/ Open access version. (application/pdf)

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: https://EconPapers.repec.org/RePEc:ehl:lserod:139055

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().