DP2567 Strategic Bidding in Electricity Pools with Short-Lived Bids: An Application to the Spanish Market

Author(s): Antón García-Díaz, Pedro Luis Marín Uribe
Publication Date: September 2000
Keyword(s): Bids, Electricity Pools, Market Power
JEL(s): K23, L13, L94
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2567

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.