Working Paper: CEPR ID: DP2567
Authors: Pedro L. Marn; Antn Garcadaz
Abstract: We generalize von der Fehr and Harbord's (1993) multi-unit auction model for the case of a deterministic demand allowing for any technology mix and elastic demand in order to account for demand side bidding. We obtain a general characterization of the equilibrium and show that the Cournot model overestimates market power in pool markets. We simulate the Spanish electricity pool and show that price-cost margins substantially increased with the 1996 merger that took the industry from a six firm structure to its current four firm structure. This is almost equivalent to a nearly symmetric duopoly. The introduction of demand-side bidding is not likely to change this situation.
Keywords: bids; electricity pools; market power
JEL Codes: K23; L13; L94
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 1996 merger (G34) | price-cost margins (D40) |
| price-cost margins (D40) | market power (L11) |
| reduction in number of firms (L19) | price-cost margins (D40) |
| introduction of demand-side bidding (D44) | market power (L11) |
| existing market structure (D40) | market power (L11) |