TY - JOUR
T1 - Comparing auction designs where suppliers have uncertain costs and uncertain pivotal status
AU - Holmberg, Pär
AU - Wolak, Frank A.
N1 - Funding Information:
∗Research Institute of Industrial Economics (IFN), Associate Researcher of the Energy Policy Research Group (EPRG), University of Cambridge; [email protected]. ∗∗Program on Energy and Sustainable Development (PESD) and Stanford University; [email protected]. Note that an earlier version of this article has the title. “Electricity markets: designing auctions where suppliers have uncertain costs.” We are grateful to Mark Armstrong, Chloé Le Coq, Mario Blázquez de Paz, Philippe Gillen, and referees for very helpful comments. We also want to acknowledge great comments from participants at a seminar at the Research Institute of Industrial Economics (IFN) (March 2016), at the IAEE conference in Bergen (June 2016), the Swedish Workshop on Competition and Procurement Research in Stockholm (November 2016), the AEA meeting in Chicago (January 2017), and participants at the Mannheim Energy Conference (May 2017). Holmberg has been financially supported by Jan Wallander and Tom Hedelius’ Research Foundations, the Torsten Söderberg Foundation, and the Swedish Energy Agency.
Publisher Copyright:
© 2018, The RAND Corporation.
PY - 2018/12
Y1 - 2018/12
N2 - We analyze how market design influences bidding in multiunit procurement auctions where suppliers have asymmetric information about production costs. Our analysis is particularly relevant to wholesale electricity markets, because it accounts for the risk that a supplier is pivotal; market demand is larger than the total production capacity of its competitors. With constant marginal costs, expected welfare improves if the auctioneer restricts offers to be flat. We identify circumstances where the competitiveness of market outcomes improves with increased market transparency. We also find that, for buyers, uniform pricing is preferable to discriminatory pricing when producers' private signals are affiliated.
AB - We analyze how market design influences bidding in multiunit procurement auctions where suppliers have asymmetric information about production costs. Our analysis is particularly relevant to wholesale electricity markets, because it accounts for the risk that a supplier is pivotal; market demand is larger than the total production capacity of its competitors. With constant marginal costs, expected welfare improves if the auctioneer restricts offers to be flat. We identify circumstances where the competitiveness of market outcomes improves with increased market transparency. We also find that, for buyers, uniform pricing is preferable to discriminatory pricing when producers' private signals are affiliated.
UR - http://www.scopus.com/inward/record.url?scp=85053938242&partnerID=8YFLogxK
U2 - 10.1111/1756-2171.12259
DO - 10.1111/1756-2171.12259
M3 - Article
AN - SCOPUS:85053938242
SN - 0741-6261
VL - 49
SP - 995
EP - 1027
JO - RAND Journal of Economics
JF - RAND Journal of Economics
IS - 4
ER -