Evaluation of a Truthful Revelation Auction in the Context of Energy Markets with Nonconcave Benefits
Posted: 5 Jan 2001
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: Suggested Citation