Complementary Bidding Mechanisms and Startup Costs in Electricity Markets
By Mar Reguant. Social Science Research Network, 2014
150 citations recorded by the source corpus.
I extend multi-unit auction estimation techniques to a setting in which firms can express cost complementarities over time. In the context of electricity markets, I show how the auction structure and bidding data can be used to estimate these complementarities, which in these markets arise due to startup costs. I find that startup costs are substantial and that taking them into account helps better explain firm bidding strategies and production patterns. As in other dynamic settings, I find that startup costs limit the ability of firms to change production over time, exacerbating fluctuations in market prices. These fluctuations can induce estimates of market power that ignore dynamic costs to overstate markup volatility, with predicted markups that can be even negative in periods of low demand. I show how accounting for startup costs can provide a natural correction for these markup biases.
Subfields: Accounting, Electrical and Electronic Engineering, Management Science and Operations Research
View Paper: https://www.semanticscholar.org/paper/6567403f2b7d7eb8a076feec394ad0fbb936a3de
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In Accounting
In Electrical and Electronic Engineering
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Citations in the corpus
- Sequential Markets, Market Power, and Arbitrage (2016, unknown): “For example, see Wolfram (1998, 1999); Borenstein et al. (2002); Kim and Knittel (2006); Puller (2007); Bushnell et al. (2008); McRae and Wolak (2009); Reguant (2014).”
- Intermittency and the Value of Renewable Energy (2011, unknown): “These match closely with the start-up costs for Spanish electricity generators estimated by Reguant (2014).23 A key input into our analysis is the installed cost per unit of solar PV capacity.”
- Pass-Through of Emissions Costs in Electricity Markets (2014, unknown): “Average markups in this market (at the margin) have been estimated to be between 5% to 20% (Reguant, 2013).”
- Market Impacts of a Nuclear Power Plant Closure (2016, background): “25While abstracting from ramping rates and other dynamic considerations is common in the literature, Reguant (2014) finds that start-up costs play an important role in bidding behavior and production patterns.”