Publication: On the Impact of Forward Contract Obligations in Multi-Unit Auctions
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2008-03
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Abstract
Several regulatory authorities worldwide have recently imposed forward
contract obligations on electricity producers as a way to mitigate their market
power. In this paper we investigate how such contractual obligations affect
equilibrium bidding in electricity markets, or in any other auction-based
market. For this purpose, we introduce forward contracts in a uniform-price
multi-unit auction model with complete information. We find that forward
contracts are pro-competitive when allocated to relatively large and efficient
firms; however, they might be anti-competitive otherwise. We also show that
an increase in contract volume need not always be welfare improving. From a
methodological point of view, we aim at contributing to the literature on multiunit
auctions with discrete bids.
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antitrust remedies, discrete bids, electricity, forward contracts, market powet, multi-unit auctions and simulations