Strategic Bidding in a Multi-Unit Auction: An Empirical Analysis of Bids to Supply Electricity

57 Pages Posted: 1 Jul 2000 Last revised: 7 Oct 2010

See all articles by Catherine D. Wolfram

Catherine D. Wolfram

University of California, Berkeley - Economic Analysis & Policy Group; National Bureau of Economic Research (NBER)

Date Written: November 1997

Abstract

This paper considers the bidding behavior of participants in the daily auction to supply electricity in England and Wales. Every day, owners of generating capacity submit bids reflecting a price for power from their plants. The price bid by the last plant used to meet electricity needs in a given time period is the price paid for capacity from all plants. Theoretical work on uniform-price multi-unit auctions suggests that bidders selling more than one unit of a good have an incentive to increase the prices they bid at high quantities. If a bid sets the equilibrium price, the bidder receives a higher price for that unit as well as for all inframarginal units. I find evidence of strategic bid increases. First, plants that are likely to be used after a number of other plants are already operating bid more. Second, the larger supplier submits higher bids, all else equal. Lastly, there is some evidence that bids for given plants are higher when the suppliers have more available capacity.

Suggested Citation

Wolfram, Catherine D., Strategic Bidding in a Multi-Unit Auction: An Empirical Analysis of Bids to Supply Electricity (November 1997). NBER Working Paper No. w6269, Available at SSRN: https://ssrn.com/abstract=226026

Catherine D. Wolfram (Contact Author)

University of California, Berkeley - Economic Analysis & Policy Group ( email )

Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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