An Experimental Analysis of the Effects of Automated Mitigation Procedures on Investment and Prices in Wholesale Electricity Markets
30 Pages Posted: 1 Jun 2005
Date Written: May 15, 2005
In this paper we report the findings of an experiment that examines the effects of automated mitigation procedures (AMP) on capacity investment prices of suppliers in a wholesale electricity market. Specifically, in a 2 x 2 design we examine the effects of strong and weak market power incentives on markets with and without the AMP. We find that a type of soft relative offer cap does not affect overall investment in capacity. The AMP also does not reduce long-run wholesale electricity prices relative to markets in which no mitigation mechanism is in operation. The factor with the most significant effect on long-run prices is investment in new capacity.
Keywords: electric power markets, automated mitigation procedures, investment
JEL Classification: C92, L11, L94
Suggested Citation: Suggested Citation