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A more efficient procurement mechanism for reserver capacity in the German market for balancing power

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  • Flinkerbusch, Kai

Abstract

From auction theory we know that multi-unit, pay-as-bid auctions in general lead to bid shading and thus to an inefficient allocation. This result is supported by historical data from the German market for balancing power, which show that bidders bid well above their actual costs. In contrast to the pay-as-bid auction, the Vickrey auction has the dominant strategy property and bidders reveal their true opportunity cost. Consequently, the Vickrey auction allocates efficiently. In this article we show how this auction format can facilitate an efficient capacity procurement process in the German reserve market.

Suggested Citation

  • Flinkerbusch, Kai, 2011. "A more efficient procurement mechanism for reserver capacity in the German market for balancing power," CAWM Discussion Papers 52, University of Münster, Münster Center for Economic Policy (MEP).
    • Handle: RePEc:zbw:cawmdp:52
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    References listed on IDEAS

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    More about this item

    Keywords

    Electricity market; balancing power; uniform-price auction; pay-as-bid auction;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • N74 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - Europe: 1913-
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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