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Natalia Fabra, UC3M Print
Tuesday, 23 April 2019, 14:00 - 15:15

Natalia Fabra, Universidad Carlos III, Madrid

Auctions with Unknown Capacities: Understanding Competition among Renewables

Abstract: We analyze a multi-unit auction model in which firms' production capacities are private information. Firms compete by choosing price and quantity offers, and prices are determined through market clearing (uniform price auction). The actual mode of competition is endogenously determined in equilibrium. For large realized capacities, firms behave a la Cournot: they bid at marginal costs, and exercise market power by withholding output. Otherwise, firms behave a la Bertrand-Edgeworth: they offer all their capacity at prices above marginal costs, with markups decreasing in the firm's capacity. We find that private information serves as an imperfect coordination device, which allows firms to obtain higher profits than if capacities were unknown, but lower than if capacities were publicly known. We also analyze the effects of switching to a discriminatory auction and the effects of fragmenting the market structure. The results shed light on the nature of the strategic interaction  between renewable producers in electricity auctions. 

 

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