Citation

Discussion Paper Details

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

Author(s): Maria-Angeles de Frutos and Natalia Fabra

Publication Date: March 2008

Keyword(s): antitrust remedies, discrete bids, electricity, Forward contracts, market power, multi-unit auctions and simulations

Programme Area(s): Industrial Organization

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 multi-unit auctions with discrete bids.

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Bibliographic Reference

de Frutos, M and Fabra, N. 2008. 'On the Impact of Forward Contract Obligations in Multi-Unit Auctions'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6756