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An auction story: How simple bids struggle with uncertainty

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  • Richstein, Jörn C.
  • Lorenz, Casimir
  • Neuhoff, Karsten

Abstract

Short-term electricity markets are key to an efficient production by generation units. We develop a two-period model to assess different bidding formats to determine for each bidding format the optimal bidding strategy of competitive generators facing price-uncertainty. We compare the results for simple bidding, block bidding and multi-part bidding. We find that even under optimal simple and block bidding, generators face the risk of ex-post suboptimal solutions, whereas in multi-part bidding these do not occur. This points to efficiency gains of multi-part bidding in the presence of uncertainty in electricity markets.

Suggested Citation

  • Richstein, Jörn C. & Lorenz, Casimir & Neuhoff, Karsten, 2020. "An auction story: How simple bids struggle with uncertainty," Energy Economics, Elsevier, vol. 89(C).
    • Handle: RePEc:eee:eneeco:v:89:y:2020:i:c:s0140988320301249
    DOI: 10.1016/j.eneco.2020.104784
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    Cited by:

    1. D'avid Csercsik, 2020. "Strategic bidding via the interplay of minimum income condition orders in day-ahead power exchanges," Papers 2012.07789, arXiv.org.
    2. Eicke, Anselm & Schittekatte, Tim, 2022. "Fighting the wrong battle? A critical assessment of arguments against nodal electricity prices in the European debate," Energy Policy, Elsevier, vol. 170(C).
    3. Divényi, Dániel & Polgári, Beáta & Sleisz, Ádám & Sőrés, Péter & Raisz, Dávid, 2021. "Investigating minimum income condition orders on European power exchanges: Controversial properties and enhancement proposals," Applied Energy, Elsevier, vol. 281(C).
    4. Csercsik, Dávid, 2021. "Strategic bidding via the interplay of minimum income condition orders in day-ahead power exchanges," Energy Economics, Elsevier, vol. 95(C).
    5. Martin Bichler & Hans Ulrich Buhl & Johannes Knörr & Felipe Maldonado & Paul Schott & Stefan Waldherr & Martin Weibelzahl, 2022. "Electricity Markets in a Time of Change: A Call to Arms for Business Research," Schmalenbach Journal of Business Research, Springer, vol. 74(1), pages 77-102, March.
    6. Li, Wanying & Dong, Fugui & Ji, Zhengsen & Xia, Meijuan, 2023. "Analysis of the compound differential evolution game of new energy manufacturers’ two-stage market behavior under the weight of consumption responsibility," Energy, Elsevier, vol. 264(C).
    7. Neuhoff, Karsten & Richstein, Jörn C. & Kröger, Mats, 2023. "Reacting to changing paradigms: How and why to reform electricity markets," Energy Policy, Elsevier, vol. 180(C).
    8. Karsten Neuhoff & Jörn C. Richstein & Mats Kröger, 2023. "Reacting to Changing Paradigms: How and Why to Reform Electricity Markets," DIW Berlin: Politikberatung kompakt, DIW Berlin, German Institute for Economic Research, volume 127, number pbk189.

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    More about this item

    Keywords

    Market design; Electricity markets; Bidding formats; Auctions;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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