DP6756 On the Impact of Forward Contract Obligations in Multi-Unit Auctions
|Author(s):||Maria-Angeles de Frutos, Natalia Fabra|
|Publication Date:||March 2008|
|Keyword(s):||antitrust remedies, discrete bids, electricity, Forward contracts, market power, multi-unit auctions, simulations|
|JEL(s):||G13, L13, L94|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=6756|
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.