Bidding and Investment in Wholesale Electricity Markets: Discriminatory versus Uniform-Price Auctions Working Paper

37 Pages Posted: 6 Sep 2023 Last revised: 17 Sep 2023

See all articles by Bert Willems

Bert Willems

UCLouvain - LIDAM / CORE; Tilburg University - Department of Economics - CentER & TILEC; University of Toulouse 1 - Toulouse School of Economics (TSE)

Yueting Yu

Tilburg University - Department of Economics

Date Written: August 31, 2023

Abstract

We compare uniform and discriminatory-price auctions in wholesale electricity markets, studying both long-run investment incentives and short-run bidding behaviors. We develop a monopolistic competition model with a continuum of generation technologies ranging from base load to peak load, free entry and uncertain elastic demand. Our findings reveal that discriminatory-price auctions are inefficient because consumers’ willingness to pay exceeds the marginal costs and investment incentives are distorted. Despite having an equal total installed capacity, the generation mix under discriminatory-price auctions skews towards a shortage of base-load technologies. Consequently, this results in a lower long-run consumer surplus.

JEL Classification: D44, D47, L94)

Suggested Citation

Willems, Bert and Yu, Yueting, Bidding and Investment in Wholesale Electricity Markets: Discriminatory versus Uniform-Price Auctions Working Paper (August 31, 2023). TILEC Discussion Paper No. 2023-14, Available at SSRN: https://ssrn.com/abstract=4563002 or http://dx.doi.org/10.2139/ssrn.4563002

Bert Willems (Contact Author)

UCLouvain - LIDAM / CORE ( email )

Place Montesquieu, 3
Louvain-la-Neuve, 1348
Belgium

Tilburg University - Department of Economics - CentER & TILEC ( email )

P.O. Box 90153 Room K308
Tilburg, 5000LE
Netherlands
+31134662588 (Phone)

HOME PAGE: http://www.bertwillems.com

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Yueting Yu

Tilburg University - Department of Economics ( email )

P.O. Box 90153
Tilburg
Netherlands

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

Paper statistics

Downloads
127
Abstract Views
444
Rank
418,592
PlumX Metrics