Tacit Collusion in Electricity Markets with Uncertain Demand

Tacit Collusion in Electricity Markets with Uncertain Demand In this paper we model wholesale electricity markets as infinitely repeated games that are played under demand uncertainty. We examine the uniform-price auction and show that symmetric bidding at the price cap constitutes the optimal collusive equilibrium under perfectly inelastic demand in the duopoly and oligopoly models. We further extend our analysis to study the impact of price-responsive demand and cost-asymmetry on the collusive equilibrium. The main implication of our analysis is the importance of a vigilant energy regulatory authority to the success of liberalized electricity markets. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Tacit Collusion in Electricity Markets with Uncertain Demand

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Publisher
Springer US
Copyright
Copyright © 2015 by Springer Science+Business Media New York
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-015-9481-0
Publisher site
See Article on Publisher Site

Abstract

In this paper we model wholesale electricity markets as infinitely repeated games that are played under demand uncertainty. We examine the uniform-price auction and show that symmetric bidding at the price cap constitutes the optimal collusive equilibrium under perfectly inelastic demand in the duopoly and oligopoly models. We further extend our analysis to study the impact of price-responsive demand and cost-asymmetry on the collusive equilibrium. The main implication of our analysis is the importance of a vigilant energy regulatory authority to the success of liberalized electricity markets.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Aug 18, 2015

References

  • Tacit collusion and capacity withholding in repeated uniform price auctions
    Dechenaux, E; Kovenock, D
  • Tacit collusion in repeated auctions: Uniform versus discriminatory
    Fabra, N

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