IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v70y2014icp74-84.html
   My bibliography  Save this article

The value of information in explicit cross-border capacity auction regimes in electricity markets

Author

Listed:
  • Richter, Jan
  • Viehmann, Johannes

Abstract

We study two electricity markets connected by a fixed amount of cross-border capacity. The total amount of capacity is known to all electricity traders and allocated via an auction. The capacity allocated to each bidder in the auction remains private information. We assume that traders are faced with a demand function reflecting the relationship between electricity transmitted between the markets and the spot price difference. Therefore, traders act like Bayesian–Cournot oligopolists in exercising their transmission rights when presented with incomplete information about the competitors’ capacities. Our analysis breaks down the welfare effect into three different components: Cournot behavior, capacity constraints, and incomplete information. We find that social welfare increases with the level of information with which traders are endowed.

Suggested Citation

  • Richter, Jan & Viehmann, Johannes, 2014. "The value of information in explicit cross-border capacity auction regimes in electricity markets," Energy Policy, Elsevier, vol. 70(C), pages 74-84.
    • Handle: RePEc:eee:enepol:v:70:y:2014:i:c:p:74-84
    DOI: 10.1016/j.enpol.2014.03.023
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301421514001700
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.enpol.2014.03.023?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Meeus, Leonardo, 2011. "Implicit auctioning on the Kontek Cable: Third time lucky?," Energy Economics, Elsevier, vol. 33(3), pages 413-418, May.
    2. Jullien, Céline & Pignon, Virginie & Robin, Stéphane & Staropoli, Carine, 2012. "Coordinating cross-border congestion management through auctions: An experimental approach to European solutions," Energy Economics, Elsevier, vol. 34(1), pages 1-13.
    3. Einy, Ezra & Haimanko, Ori & Moreno, Diego & Shitovitz, Benyamin, 2010. "On the existence of Bayesian Cournot equilibrium," Games and Economic Behavior, Elsevier, vol. 68(1), pages 77-94, January.
    4. Raith, Michael, 1996. "A General Model of Information Sharing in Oligopoly," Journal of Economic Theory, Elsevier, vol. 71(1), pages 260-288, October.
    5. Viehmann, Johannes, 2011. "Risk premiums in the German day-ahead Electricity Market," Energy Policy, Elsevier, vol. 39(1), pages 386-394, January.
    6. David A. Maleug & Shunichi O. Tsutsui, 1998. "Oligopoly Information Exchange when Non‐negative Price and Output Constraints may Bind," Australian Economic Papers, Wiley Blackwell, vol. 37(4), pages 363-371, December.
    7. Einy, Ezra & Moreno, Diego & Shitovitz, Benyamin, 2002. "Information Advantage in Cournot Oligopoly," Journal of Economic Theory, Elsevier, vol. 106(1), pages 151-160, September.
    8. Richter, Jan, 2013. "Incomplete Information in Cournot Oligopoly: The Case of Unknown Production Capacities," EWI Working Papers 2013-1, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    9. repec:bla:ausecp:v:37:y:1998:i:4:p:363-71 is not listed on IDEAS
    10. Georg Gebhardt and Felix Hoffler, 2013. "How Competitive is Cross-border Trade of Electricity? Theory and Evidence from European Electricity Markets," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    11. Derek Bunn & Georg Zachmann, 2010. "Inefficient arbitrage in inter-regional electricity transmission," Journal of Regulatory Economics, Springer, vol. 37(3), pages 243-265, June.
    12. Kristiansen, Tarjei, 2007. "Cross-border transmission capacity allocation mechanisms in South East Europe," Energy Policy, Elsevier, vol. 35(9), pages 4611-4622, September.
    13. Céline Jullien & Virginie Pignon & Stéphane Robin & Carine Staropoli, 2012. "Coordinating cross-border congestion management through auctions: An experimental approach to European solutions," Post-Print halshs-00617026, HAL.
    14. Zachmann, Georg, 2008. "Electricity wholesale market prices in Europe: Convergence?," Energy Economics, Elsevier, vol. 30(4), pages 1659-1671, July.
    15. Turvey, Ralph, 2006. "Interconnector economics," Energy Policy, Elsevier, vol. 34(13), pages 1457-1472, September.
    16. Carl Shapiro, 1986. "Exchange of Cost Information in Oligopoly," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(3), pages 433-446.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kiesel, Rüdiger & Kusterman, Michael, 2016. "Structural models for coupled electricity markets," Journal of Commodity Markets, Elsevier, vol. 3(1), pages 16-38.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Richter, Jan, 2013. "Incomplete Information in Cournot Oligopoly: The Case of Unknown Production Capacities," EWI Working Papers 2013-1, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    2. Einy, Ezra & Haimanko, Ori & Moreno, Diego & Shitovitz, Benyamin, 2010. "On the existence of Bayesian Cournot equilibrium," Games and Economic Behavior, Elsevier, vol. 68(1), pages 77-94, January.
    3. Oriol Carbonell-Nicolau & Richard P. McLean, 2018. "On the Existence of Nash Equilibrium in Bayesian Games," Mathematics of Operations Research, INFORMS, vol. 43(2), pages 100-129, February.
    4. Sjaak Hurkens, 2014. "Bayesian Nash equilibrium in “linear” Cournot models with private information about costs," International Journal of Economic Theory, The International Society for Economic Theory, vol. 10(2), pages 203-217, June.
    5. Mahringer, Steffen & Fuess, Roland & Prokopczuk, Marcel, 2015. "Electricity Market Coupling and the Pricing of Transmission Rights: An Option-based Approach," Working Papers on Finance 1512, University of St. Gallen, School of Finance.
    6. Montoya, L.G. & Guo, B. & Newbery, D. & Dodds, P.E. & Lipman, G. & Castagneto Gissey, G., 2020. "Measuring inefficiency in international electricity trading," Energy Policy, Elsevier, vol. 143(C).
    7. de Nooij, Michiel, 2011. "Social cost-benefit analysis of electricity interconnector investment: A critical appraisal," Energy Policy, Elsevier, vol. 39(6), pages 3096-3105, June.
    8. Meeus, Leonardo, 2011. "Implicit auctioning on the Kontek Cable: Third time lucky?," Energy Economics, Elsevier, vol. 33(3), pages 413-418, May.
    9. Lin, C.-Y. Cynthia & Muehlegger, Erich J., 2013. "On the use of heuristics to approximate competitors’ private information," Journal of Economic Behavior & Organization, Elsevier, vol. 86(C), pages 10-23.
    10. Jacques Pelkmans & Lionel Kapff, 2010. "Interconnector Investment for a Well-functioning Internal Market. What EU regime of regulatory incentives?," Bruges European Economic Research Papers 18, European Economic Studies Department, College of Europe.
    11. Meeus, Leonardo, 2011. "Why (and how) to regulate power exchanges in the EU market integration context?," Energy Policy, Elsevier, vol. 39(3), pages 1470-1475, March.
    12. Abadie, Luis María & Chamorro, José Manuel, 2021. "Evaluation of a cross-border electricity interconnection: The case of Spain-France," Energy, Elsevier, vol. 233(C).
    13. Roy, Jaideep & Silvers, Randy & Sun, Ching-Jen, 2019. "Majoritarian preference, utilitarian welfare and public information in Cournot oligopoly," Games and Economic Behavior, Elsevier, vol. 116(C), pages 269-288.
    14. Florian Ziel & Rick Steinert & Sven Husmann, 2015. "Forecasting day ahead electricity spot prices: The impact of the EXAA to other European electricity markets," Papers 1501.00818, arXiv.org, revised Dec 2015.
    15. Juan-José Ganuza & Jos Jansen, 2013. "Too Much Information Sharing? Welfare Effects of Sharing Acquired Cost Information in Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 61(4), pages 845-876, December.
    16. Junjie Zhou & Xiaoshuai Fan & Ying-Ju Chen & Christopher S. Tang, 2021. "Information Provision and Farmer Welfare in Developing Economies," Manufacturing & Service Operations Management, INFORMS, vol. 23(1), pages 230-245, 1-2.
    17. Piccolo, Salvatore & Pagnozzi, Marco, 2013. "Information sharing between vertical hierarchies," Games and Economic Behavior, Elsevier, vol. 79(C), pages 201-222.
    18. Hyoduk Shin & Tunay I. Tunca, 2010. "Do Firms Invest in Forecasting Efficiently? The Effect of Competition on Demand Forecast Investments and Supply Chain Coordination," Operations Research, INFORMS, vol. 58(6), pages 1592-1610, December.
    19. Luigi De Paoli & Elena Fumagalli, 2013. "Estimating welfare losses and gains in explicit auctions for power trade: an application to the Italian case," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 2013(2), pages 153-181.
    20. Gebhardt, Georg & Höffler, Felix, 2008. "How to Determine whether Regional Markets are Integrated? Theory and Evidence from European Electricity Markets," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 236, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

    More about this item

    Keywords

    Cournot oligopoly; Incomplete information; Capacity constraints; Electricity markets; Interconnector; Cross-border trade;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:70:y:2014:i:c:p:74-84. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/enpol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.