An Experimental Analysis of the Effects of Automated Mitigation Procedures on Investment and Prices in Wholesale Electricity Markets

30 Pages Posted: 1 Jun 2005

See all articles by L. Lynne Kiesling

L. Lynne Kiesling

Purdue University - Department of Economics

Bart J. Wilson

Chapman University - Smith Institute for Political Economy and Philosophy; Chapman University - Economic Science Institute (ESI); Chapman University, The Dale E. Fowler School of Law

Date Written: May 15, 2005

Abstract

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

Kiesling, L. Lynne and Wilson, Bart J., An Experimental Analysis of the Effects of Automated Mitigation Procedures on Investment and Prices in Wholesale Electricity Markets (May 15, 2005). Available at SSRN: https://ssrn.com/abstract=733404 or http://dx.doi.org/10.2139/ssrn.733404

L. Lynne Kiesling (Contact Author)

Purdue University - Department of Economics ( email )

West Lafayette, IN 47907-1310
United States

Bart J. Wilson

Chapman University - Smith Institute for Political Economy and Philosophy ( email )

One University Drive
Orange, CA 92866
United States
(714) 628-7306 (Phone)

HOME PAGE: http://www1.chapman.edu/~bjwilson/

Chapman University - Economic Science Institute (ESI) ( email )

One University Drive
Orange, CA 92866
United States
(714) 628-7306 (Phone)

Chapman University, The Dale E. Fowler School of Law ( email )

One University Drive
Orange, CA 92866-1099
United States
(714) 628-7306 (Phone)

HOME PAGE: http://www1.chapman.edu/~bjwilson/

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