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Understanding strategic bidding in restructured electricity markets : a case study of ERCOT

Author: Ali Hortaçsu; Steven L Puller; National Bureau of Economic Research.
Publisher: Cambridge, Mass. : National Bureau of Economic Research, 2005.
Series: Working paper series (National Bureau of Economic Research), no. 11123.
Edition/Format:   eBook : Document : EnglishView all editions and formats
Summary:
"We examine the bidding behavior of firms competing on ERCOT, the hourly electricity balancing market in Texas. We characterize an equilibrium model of bidding into this uniform-price divisible-good auction market. Using detailed firm-level data on bids and marginal costs of generation, we find that firms with large stakes in the market performed close to theoretical benchmarks of static, profit-maximizing bidding  Read more...
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Details

Material Type: Document, Internet resource
Document Type: Internet Resource, Computer File
All Authors / Contributors: Ali Hortaçsu; Steven L Puller; National Bureau of Economic Research.
OCLC Number: 57614335
Notes: February 2005.
Description: 1 online resource (50, [10] pages) : illustrations (some color).
Series Title: Working paper series (National Bureau of Economic Research), no. 11123.
Responsibility: Ali Hortacsu, Steven L. Puller.

Abstract:

"We examine the bidding behavior of firms competing on ERCOT, the hourly electricity balancing market in Texas. We characterize an equilibrium model of bidding into this uniform-price divisible-good auction market. Using detailed firm-level data on bids and marginal costs of generation, we find that firms with large stakes in the market performed close to theoretical benchmarks of static, profit-maximizing bidding derived from our model. However, several smaller firms utilized excessively steep bid schedules that deviated significantly from our theoretical benchmarks, in a manner that could not be empirically accounted for by the presence of technological adjustment costs, transmission constraints, or collusive behavior. Our results suggest that payoff scale matters in firms' willingness and ability to participate in complex, strategic market environments. Finally, although smaller firms moved closer to theoretical bidding benchmarks over time, their bidding patterns contributed to productive inefficiency in this newly restructured market, along with efficiency losses due to the close-to optimal exercise of market power by larger firms"--National Bureau of Economic Research web site.

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