Bidding Asymmetries in Multi-Unit Auctions: Implications of Bid Function Equilibria in the British Spot Market for Electricity

Crawford, Gregory S.; Crespo, Joseph; Tauchen, Helen

doi:10.2139/ssrn.829292

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Bidding Asymmetries in Multi-Unit Auctions: Implications of Bid Function Equilibria in the British Spot Market for Electricity

41 Pages Posted: 2 Nov 2005

See all articles by Gregory S. Crawford

Gregory S. Crawford

University of Zurich - Department of Economics

Helen Tauchen

University of North Carolina (UNC) at Chapel Hill - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: October 15, 2005

Abstract

This paper introduces and tests Bid Function Equilibria (BFE) in the British spot market for electricity. BFE are Nash Equilibria of an oligopoly model of multi-unit auctions under complete information designed to reflect wholesale electricity markets. Unlike existing theories of electricity supply, BFE predict asymmetric bidding by producers: a single firm (the price-setter) bids strategically while other forms (non-price-setters) bid their costs. Using data on bid functions between 1993 and 1995, we find strong empirical support for the theory. We conclude that BFE has important implications for the design and governance of electricity markets.

Keywords: Electricity, multi-unit auction, asymmetric, market power

JEL Classification: L13, L94, L50

Suggested Citation: Suggested Citation

Crawford, Gregory S. and Crespo, Joseph and Tauchen, Helen V., Bidding Asymmetries in Multi-Unit Auctions: Implications of Bid Function Equilibria in the British Spot Market for Electricity (October 15, 2005). Available at SSRN: https://ssrn.com/abstract=829292 or http://dx.doi.org/10.2139/ssrn.829292