Evaluation of a Truthful Revelation Auction in the Context of Energy Markets with Nonconcave Benefits

Posted: 5 Jan 2001

See all articles by Benjamin F. Hobbs

Benjamin F. Hobbs

Johns Hopkins University

Michael H. Rothkopf

Rutgers University, Piscataway

Laurel C. Hyde

Government of the United States of America - Office of Economic Policy

Richard P. O'Neill

Government of the United States of America - Office of Economic Policy

Abstract

We describe a Vickrey-Clarke-Groves auction of supply and demand bidding in the face of market power and nonconcave benefits in which bidders are motivated to bid truthfully, and evaluate its use for power and gas pipeline auctions. The auction efficiently allocates resources if firms maximize profits. Simulations, including an application to the PJM power market, illustrate the procedure. However. the auction has several undesirable properties. It risks being revenue deficient, can be gamed by cooperating suppliers and consumers, and is subject to the information revelation and bid-taker cheating concerns that make single item Vickrey auctions rare.

JEL Classification: D44,Q4

Suggested Citation

Hobbs, Benjamin F. and Rothkopf, Michael H. and Hyde, Laurel C. and O'Neill, Richard P., Evaluation of a Truthful Revelation Auction in the Context of Energy Markets with Nonconcave Benefits. J of Regulatory Economics, Vol. 18, No. 1, 2000. Available at SSRN: https://ssrn.com/abstract=251428

Benjamin F. Hobbs (Contact Author)

Johns Hopkins University ( email )

Whiting School of Engineering
Baltimore, MD 21218
United States
410 516-4681 (Phone)
410 516-8996 (Fax)

Michael H. Rothkopf

Rutgers University, Piscataway ( email )

Rutgers Business School and RUTCOR
Rutcor Modular Bldg, Room 121
Piscataway, NJ 08854
United States
732-445-0266 (Phone)
732-445-5472 (Fax)

Laurel C. Hyde

Government of the United States of America - Office of Economic Policy ( email )

888 First St., N.E.
Washington, DC 20426
United States

Richard P. O'Neill

Government of the United States of America - Office of Economic Policy ( email )

888 First St., N.E.
Washington, DC 20426
United States
202 208-2220 (Phone)
202 208-0193 (Fax)

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