Do Pay-as-Bid Auctions Favor Collusion? Evidence from Germany's Market for Reserve Power

29 Pages Posted: 15 Jun 2013

See all articles by Sven Heim

Sven Heim

MINES ParisTech

Georg Götz

University of Giessen - Department of Economics

Date Written: 2013

Abstract

We analyze a drastic price increase in the German auction market for reserve power, which did not appear to be driven by increased costs. Studying the market structure and individual bidding strategies, we find evidence for collusive behavior in an environment with repeated auctions, pivotal suppliers and inelastic demand. The price increase can be traced back to an abuse of the auction’s pay-as-bid mechanism by the two largest firms. In contrast to theoretical findings, we show that pay-as-bid auctions do not necessarily reduce incentives for strategic capacity withholding and collusive behavior, but can even increase them.

Keywords: Auctions, Collusion, Market Power, Energy Markets, Reserve Power, Balancing Power

JEL Classification: D43, D44, D47, L11, L13

Suggested Citation

Heim, Sven and Götz, Georg, Do Pay-as-Bid Auctions Favor Collusion? Evidence from Germany's Market for Reserve Power (2013). ZEW - Centre for European Economic Research Discussion Paper No. 35, Available at SSRN: https://ssrn.com/abstract=2278873 or http://dx.doi.org/10.2139/ssrn.2278873

Sven Heim (Contact Author)

MINES ParisTech ( email )

60 boulevard Saint Michel
Paris, 75006
France

Georg Götz

University of Giessen - Department of Economics ( email )

Licher Str. 62
Giessen, Hessen D-35394
Germany
+49 641 99 22050 (Phone)
+49 641 99 19867 (Fax)

HOME PAGE: http://wiwi.uni-giessen.de/home/goetz/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
112
Abstract Views
639
rank
327,891
PlumX Metrics