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Title: Strategic Bidding in Electricity Pools with Short-Lived Bids: An Application to the Spanish Market

Author(s): Antón García-Díaz and Pedro Luis Marín Uribe

Publication Date: September 2000

Keyword(s): Bids, Electricity Pools and Market Power

Programme Area(s): Industrial Organization

Abstract: We generalize von der Fehr and Harbord's (1993) multi-unit auction model for the case of a deterministic demand allowing for any technology mix and elastic demand in order to account for demand side bidding. We obtain a general characterization of the equilibrium and show that the Cournot model overestimates market power in pool markets. We simulate the Spanish electricity pool and show that price-cost margins substantially increased with the 1996 merger that took the industry from a six firm structure to its current four firm structure. This is almost equivalent to a nearly symmetric duopoly. The introduction of demand-side bidding is not likely to change this situation.

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Bibliographic Reference

García-Díaz, A and Marín Uribe, P. 2000. 'Strategic Bidding in Electricity Pools with Short-Lived Bids: An Application to the Spanish Market'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2567