Discussion paper

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

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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Citation

Marín Uribe, P and A García-Díaz (eds) (2000), “DP2567 Strategic Bidding in Electricity Pools with Short-Lived Bids: An Application to the Spanish Market”, CEPR Press Discussion Paper No. 2567. https://cepr.org/publications/dp2567