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On the Impact of Forward Contract Obligations in Multi-Unit Auctions

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URI: http://hdl.handle.net/10016/5010
ISSN: 0265-8003
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Impact_WPCEPR_2008_6756_preprint.pdf (319.48 KB)
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2008-03
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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
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