Comparing auction designs where suppliers have uncertain costs and uncertain pivotal status

Pär Holmberg, Frank A. Wolak

Research output: Contribution to journalArticleResearchpeer-review

15 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)995-1027
Number of pages33
JournalRAND Journal of Economics
Volume49
Issue number4
DOIs
Publication statusPublished - Dec 2018
Externally publishedYes

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