Strategic Bidding in Multi-unit Auctions with Capacity Constrained Bidders: The New York Capacity Market

Sebastian Schwenen ()

No 2012/62, RSCAS Working Papers from European University Institute

Abstract: This paper employs a simple model to describe bidding behavior in multi-unit uniform price procurement auctions when firms are capacity constrained. Using data from the New York City capacity auctions, I find that capacity constrained firms use simple bidding strategies to co-ordinate on an equilibrium that extracts high rents for all bidders. I show theoretically and empirically that the largest bidder submits the auction clearing bid. All other bidders submit infra-marginal bids that are low enough to not be profitably undercut. Infra-marginal bidders react to capacity endowments and decrease their bids as the largest firm's capacities and its profits of undercutting increase. Capacity markets, when designed as studied here, are a costly tool to increase security of supply in electricity markets, as capacity prices do not reflect actual capacity scarcity.

JEL-codes: D43 D44 L11 L13 (search for similar items in EconPapers)
Date: 2012-12-02
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Citations: View citations in EconPapers (2)

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http://hdl.handle.net/1814/24537

Related works:
Journal Article: Strategic bidding in multi-unit auctions with capacity constrained bidders: the New York capacity market (2015)
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