endogenous entry and self selection in private value auctions an experimental study this paper presents the results of an experimental study of endogenous entry in first price independent private value auctions n potential bidders simultaneously decide whether to participate in an auction or receive a known outside option in the second stage entrants submit bids after learning their own private values and the number of entrants an equilibrium model of heterogeneous risk averse bidders implies a self selection effect where bidding in the auction is lower with endogenous entry because only less risk averse bidders enter this effect is confirmed by the experiment we also observe excessive entry relative to the theoretical model

equilibrium in auctions with entry the authors model entry incentives in auctions with risk neutral bidders and characterize a symmetric equilibrium in which the number of entrants is stochastic the presence of too many potential bidders raises coordination costs that detract from welfare the authors show that the seller and society can benefit from policies that reduce market thickness i e the relative abundance of buyers their analysis extends well known revenue equivalence and ranking theorems but also demonstrates that variations in the auction environment affect optimal policies e g reservation prices in ways not anticipated by models that ignore entry copyright 1994 by american economic association

environmental policy and stable collusion the case of a dynamic polluting oligopoly we show that the imposition of a markovian tax on emissions that is a tax rate which depends on the pollution stock can induce stable cartelization in an oligopolistic polluting industry this does not hold for a uniform tax thus accounting for the feedback effect that exists within a dynamic framework where pollution is allowed to accumulate into a stock over time changes the result obtained within a static framework moreover the cartel formation can diminish the welfare gain from environmental regulation such that welfare under environmental regulation and collusion of firms lies below that under a laissez faire policy

auctions with a stochastic number of bidders abstract auction theory is generalized by allowing the number of bidders to be stochastic in a first price sealed bid auction with bidders having constant absolute risk aversion the expected selling price is higher when the bidders do not know how many other bidders there are than when they do know this thus the seller should conceal the number of bidders if he can moreover a bidder s ex ante expected utility is the same whether or not there is a policy of concealing the number of bidders concealment therefore pareto dominates announcement with risk neutral bidders the optimal auction is the same whether or not the bidders know who their competitors are

optimal auctions revisited in symmetric privately known values oral auctions with costly entry for bidders the seller can do no better than by committing ex ante to a reservation price and entry fees or subsidies which result in no fewer and at most one more bidders than a reservation price equal to the seller s value would in the absence of entry fees or subsidies journal of economic literature classification numbers d44 c72

modelling weather effects for impact analysis of residential time of use electricity pricing abstract analyzing the impact of pricing policies such as time of use tou is challenging in the presence of confounding factors such as weather motivated by a lack of consensus and model selection details in prior work we present a methodology for modelling the effect of weather on residential electricity demand the best model is selected according to explanatory power out of sample prediction accuracy goodness of fit and interpretability we then evaluate the effect of mandatory tou pricing in a local distribution company in southwestern ontario canada we use a smart meter dataset of over 20 000 households which is particularly suited to our analysis it contains data from the summer before and after the implementation of tou pricing in november 2011 and all customers transitioned from tiered rates to tou rates at the same time we find that during the summer rate season tou pricing results in electricity conservation across all price periods the average demand change during on peak and mid peak periods is 2 6 and 2 4 respectively changes during off peak periods are not statistically significant these tou pricing effects are less pronounced compared to previous studies underscoring the need for clear reproducible impact analyses which include full details about the model selection process

two remarks on the equilibrium analysis of horizontal merger abstract we describe two simple results in equilibrium analysis of horizontal merger in cournot industry the first has to do with welfare enhancing conditions of output reducing merger and the second describes the limited abilities of cournot firms in exploiting market power profitably through horizontal merger

effect of stopping hydroelectric power generation on the dynamics of electricity prices an event study approach abstract supply shocks in electricity markets that disrupt energy production cause unexpected spikes in prices which in turn have economic consequences such as higher risk and therefore higher costs and losses for producers and consumers of electricity one relevant shock in this sector is the halting of hydroelectric power generation due to the freezing of water reservoirs after the temperature drops below zero degrees celsius and therefore less efficient technologies such as thermal plants must begin to produce electricity using an event study approach this shock in the nord pool market is explicitly identified and the economic importance of expanding the interconnected market and the inclusion of more renewable sources in the generation mix of the system to smooth out price spikes is quantified when a freezing event occurs it is found that the average electricity prices increase between 1 and 6 and that the negative relationship between temperature and prices also increases for each degree that the temperature decreases prices increase between 1 and 3 however as expected these changes are more pronounced in countries that are most dependent on hydropower generation by identifying this supply shock relevant insights are presented for market players such as policy makers investors and consumers and producers whose decisions are influenced by the effect of temperature particularly when it causes the stopping of hydroelectric plants

equilibrium bid functions for auctions with an uncertain number of bidders abstract the number of rivals may be unknown when a bidding strategy is formulated in an auction in a symmetric model with risk neutral bidders holding independent information we obtain explicit equilibrium bidding functions for first price and second price auctions with uncertainty about the number of rivals five auctions are revenue equivalent first price and second price auctions each with the number of bidders known or uncertain and english auctions

optimal bidding in auctions from a game theory perspective abstract the game theoretic perspective in auction bidding has provided a powerful normative framework for the analysis of auctions and it has generated an impressive volume of research contributions tracing this research we review key recent advances which have greatly expanded our understanding of the operation of auctions and produced a more accurate analysis of mechanism design and optimal bidding we follow various experimental studies which have shown that the predictive power of auction theory remains in many cases limited for this reason we concentrate on research themes which enhance the applicability of auction theory leading to more realistic descriptions of bidding behaviors we identify important innovations which expand the environment of auction bidding and carry us beyond rational decision making we conclude providing directions of future research and discussing their implications

indicative bidding an experimental analysis indicative bidding is a practice commonly used in sales of complex and very expensive assets theoretical analysis shows that efficient entry is not guaranteed under indicative bidding since there is no equilibrium in which more qualified bidders are more likely to be selected for the final sale furthermore there exist alternative bid procedures that in theory at least guarantee 100 efficiency and higher revenue for the seller we employ experiments to compare actual performance between indicative bidding and one of these alternative procedures the data shows that indicative bidding performs as well as the alternative procedure in terms of entry efficiency while having other characteristics that favor it over the alternative procedure our results provide an explanation for the widespread use of indicative bidding despite the potential problem identified in the equilibrium analysis

predicting price spikes in electricity markets using a regime switching model with time varying parameters this paper shows that a stochastic regime switching model can represent the volatile behavior of wholesale electricity prices associated with price spikes effectively the structure of the model is very flexible because the mean prices in the two regimes and the two transition probabilities are functions of the load and or the implicit reserve margin using price data from the single settlement market in pjm may 1999 to may 2000 the results show that the estimated switching probability from the low to the high regime predicts price spikes well if the reserve margin is measured accurately

the closed loop effect and the profitability of horizontal mergers we study the profitability of horizontal mergers in a dynamic competition context with sticky prices it is shown that when firms use open loop strategies a merger is profitable only if the share of the market that merges is significant enough in the case where firms use closed loop strategies we provide a method to conduct analytically the study of the profitability of horizontal mergers we first prove the existence of an equilibrium of the game when a subset of firms merges when firms use feedback strategies mergers are profitable even when the share of the market that

alternative common value auction procedures revenue comparisons with free entry the logic of revenue comparisons for different types of common value auctions is substantially altered if the number of participants rather than being fixed responds endogenously to the expected profitability from participating in a thoroughly symmetric model a seller may prefer that competition be indirect an auction procedure in which fewer participants are needed to drive the expected profitability from participating down to the level obtainable in other auctions in the economy can attain higher expected revenue if a sale is sufficiently likely this insight allows a complete revenue ranking of standard auction procedures with endogenous entry

partial coordination and mergers among quantity setting firms we analyze horizontal mergers in a collusive environment by using an infinitely repeated game where i a subset of collusive firms is exogenously given and ii partially collusive arrangements are allowed for we show that in our model there is no clear relation between the existence of mergers and full collusion at equilibrium however we demonstrate that the presence of mergers generally leads to a price increase also we show that cartel firms have less incentives to merge than firms in a cournot oligopoly and that collusion increases fringe firms incentives to merge 2007 elsevier b v all rights reserved jel classification l13 l40 l41

free entry and social inefficiency our goal is to provide a simple yet general exposition of the conditions under which the number of entrants in a free entry equilibrium is excessive insufficient or optimal our analysis compares the number of firms that enter a market when there is free entry with the number that would be desired by a social planner who is unable to control the behavior of firms once they are in the market that is we consider the second best problem of choosing the welfare maximizing number of firms while we take as given their noncompetitive behavior after entry we demonstrate that the crucial conditions for establishing the presence of an entry bias can be stated quite simply in terms of the outcome of the postentry game played by entrants in contrast to previous work we do not need to model this postentry game explicitly

equilibria in first price auctions with participation costs this paper characterizes the equilibria of first price auctions with participation costs in the independent private values environment bidders use cutoff strategies to decide whether they will participate in the auction it is shown that when bidders are homogeneous there always exists a unique symmetric equilibrium and further there is no other equilibrium when valuation distribution functions are inelastic when distribution functions are elastic at the symmetric equilibrium there exists an asymmetric equilibrium inelasticity elasticity includes concavity convexity of distribution functions as a special case we find similar results when bidders are heterogeneous

an empirical comparison of alternate regime switching models for electricity spot prices one of the most profound features of electricity spot prices are the price spikes markov regime switching mrs models seem to be a natural candidate for modeling this spiky behavior however in the studies published so far the goodness of fit of the proposed models has not been a major focus while most of the models were elegant their fit to empirical data has either been not examined thoroughly or the signs of a bad fit ignored with this paper we want to fill the gap we calibrate and test a range of mrs models in an attempt to find parsimonious specifications that not only address the main characteristics of electricity prices but are statistically sound as well we find that the most universal and robust structure is that of an independent spike 3 regime model with heteroscedastic diffusion type base regime dynamics and shifted spike regime distributions

on optimal reservation prices in auctions the theory of auction design examines how various factors affect the outcome of an auction most of the existing literature focuses on how varying the amount of information available to each bidder affects the bid taker s expected revenue when all other factors remain constant this paper studies how the bid taker s expected revenue varies with changes in the auction format when such changes affect the number of bidders and in turn the bidders maximum value for the object being sold specifically we examine how varying the reservation price or screening level affects the bid taker s expected revenue though its effect on the number of bidders for two simple examples the losses associated with a reduced number of bidders outweighs any benefits that nontrivial reservation prices might have had in models with an exogonously set number of bidders

what is the cost of low participation in french timber auctions how much is the timber from public forests worth how can the public forest service define a fair market price for standing timber lots what is the cost of low participation in french timber auctions to estimate the value of a timber lot we adopt the transaction evidence appraisal approach using data from timber auctions in lorraine eastern france accounting for the facts that i the seller s reserve prices are secret ii there remain many unsold lots and iii the number of bidders varies from one auction to another taking into account the endogenous participation in our hedonic price equation for the highest bid we estimate that compared to lots that receive two bids the highest bid is 22 lower when there is only one bid and 37 higher when there are three or more bids

nonlinear time series modelling an introduction recent developments in nonlinear time series modelling are reviewed three main types of nonlinear model are discussed markov switching threshold autoregression and smooth transition autoregression classical and bayesian estimation techniques are described for each model parametric tests for nonlinearity are reviewed with examples from the three types of model finally forecasting and impulse response analysis is developed

uniqueness and existence of equilibrium in auctions with a reserve price abstract we prove existence and uniqueness of equilibrium for a general class of two player bidding games we apply our results to the first price auction the combination of first and second price auctions the war of attrition the all pay auction as well as combinations of the latter two auction forms we also treat the first price auction without risk neutrality our results deal with the asymmetric affiliated common values environment in the case where signals are independent our results apply to all equilibria when signals are not independent our uniqueness results hold in the class of nondecreasing strategy equilibria journal of economic literature classification number d44

rational expectations information acquisition and competitive bidding most rational expectations market equilibrium models are not models of price formation and naive mechanisms leading to such equilibria can be severely manipulable in this paper a bidding model is developed which has the market like features that bidders act as price takers and that prices convey information higher equilibrium prices convey more favorable information about the quality of the objects being sold than do lower prices bidders can benefit from trading only if they have a transactions motive or if they have access to inside information apart from exceptional cases prices are not fully revealing a two stage model is developed in which bidders may acquire information at a cost before bidding and for which the equilibrium price is fully revealing resolving a well known paradox

when is a break up of gazprom good for russia in the late 1990s several proposals for a structural reform that would bring competition and market prices to the russian gas industry were intensely debated splitting up russian gas monopolist gazprom into several producing companies was a considered option in this paper i examine theoretically and numerically how a split up of gazprom would affect russian national welfare results show that under the current gas market structures in europe and russia the split up of gazprom s monopoly might not be beneficial for russia however analysis in the paper indicates that the market shares that gazprom has in both russian domestic and european gas markets are important in determining whether gazprom s dominance is supported under the national welfare criteria when gazprom has small market share in europe and large market share in russia a break up of gazprom might plausibly result in increase of russian national welfare

stochastic factor model for electricity spot price the case of the nordic market this paper presents a stochastic factor based approach to mid term modeling of spot prices in deregulated electricity markets the fundamentals affecting the spot price are modeled independently and a market equilibrium model combines them to form spot price main advantage of the model is the transparency of the generated prices because each underlying factor and the dynamics between factors can be modeled and studied in detail paper shows realistic numerical examples on the forerunner scandinavian electricity market the model is used to price an exotic electricity derivative

procurement and predation dynamic sourcing from financially constrained suppliers abstract this paper studies the relationship between a financially constrained firm and a stronger opponent who is not cash constrained when these firms repeatedly compete in a procurement context we characterize and discuss the procurement agency s optimal strategy when faced with such asymmetric firms we highlight a trade off between the long run benefits from competition and the short run benefits from reduced costs finally we show that to reduce costs in the short run the financially weak firm should be favored in future procurement

economic effects by merger and acquisition types in the renewable energy sector an event study approach abstract this study classifies the types of mergers and acquisitions m a carried out in the renewable energy industry and explores their effects on enterprise value both the generalized autoregressive conditional heteroskedasticity and the ordinary least squares methodologies are used in an event study in order to improve the reliability of the presented analysis in order to understand how m a type affects enterprise value depending on the inter relationship between the acquirer and target business m a cases are divided into four groups homogeneous heterogeneous renewable heterogeneous energy and heterogeneous other from this analysis four implications can be drawn first homogeneous m a shows the biggest effect on enterprise value indicating that operating synergy and increasing market power are important factors when renewable energy firms undertake m a second m a with other industries of which financing companies take part in most show the second largest effect on enterprise value meaning that renewable energy is considered to have potential as an investment product further in the analysis of the wind power industry the result that heterogeneous other m a shows an even greater effect suggests that wind power is deemed to have a high potential for growth as an industry for investment lastly renewable energy m a in existing energy industries have negative effects on enterprise value indicating that strict regulations on the use of clean energy such as renewable energy result in energy companies incurring considerable costs

temperature and seasonality influences on spanish electricity load abstract deregulation of the spanish electricity market in 1998 and the possible listing of electricity or weather derivative contracts have encouraged the study of the relationship between electricity demand and weather in spain in this paper a transfer function intervention model is developed for forecasting daily electricity load from cooling and heating degree days the influence of weather and seasonality is proved and is significant even when the autoregressive effects and the dynamic specification of the temperature are taken into account the estimated general model shows a high predictive power the results and information presented in this paper could be of interest for current users and potential traders in the deregulated spanish electricity market

international trade and the incentive for merger this article examines the profitability of horizontal merger in an open economy with cournot competition we find that duopoly is a necessary but not sufficient condition for domestic merger to be profitable a cross border merger however can be profitable from any market structure

optimal search auctions abstract we study the design of profit maximizing single unit auctions under the assumption that the seller needs to incur costs to contact prospective bidders and inform them about the auction with independent bidders types and possibly interdependent valuations the seller s problem can be reduced to a search problem in which the surplus is measured in terms of virtual utilities minus search costs compared to the socially efficient mechanism the optimal mechanism features fewer participants longer search conditional on the same set of participants and inefficient sequence of entry

competition effects of mergers an event study of the german electricity market abstract this paper investigates the competition effects of the entry of vattenfall into the german electricity market while the competition authorities supported the entry by approving vattenfall s acquisition of three regional utilities other market participants raised concerns over the emergence of an upcoming oligopoly in the german market for power generation we contrast the efficiency hypothesis postulating pro competitive effects of mergers with the market power hypothesis postulating anti competitive effects for the analysis of the two opposing hypotheses we use an event study approach to the stock prices of vattenfall s competitors in the german market while we find no empirical evidence for increased market power in the german electricity market due to vattenfall s mergers there is some indication for efficiency increases we therefore cannot oppose the view of the competition authorities predicting an overall positive effect for consumers as a result of vattenfall s entry into the german electricity market

participation costs and efficient auctions abstract suppose that risk neutral agents have independently and perhaps asymmetrically distributed private valuations for an indivisible object a mechanism assigns the object but it is costly to send messages to the coordinator in these circumstances the second price auction has an equilibrium that is classicallyex anteefficient given general opportunities to invest in information about or enhancements of own valuations in contrast the first price sealed bid auction may have no efficient equilibrium even if buyers are symmetric other properties of the first price auction are proved a semirevelation principle is established for mechanisms with participation costs journal of economic literatureclassification numbers d44 d82

the impact of heat waves on electricity spot markets abstract thermoelectric power plants depend on cooling water drawn from water bodies low river run off and or high water temperatures limit a plant s production capacity this problem may intensify with climate change our study quantifies the impact of forced capacity reductions on market prices production costs consumer and producer surplus as well as emissions by means of a bottom up power generation system model first we simulate the german electricity spot market during the heat wave of 2006 then we conduct a sensitivity study that accounts for future climatic and technological conditions we find an average price increase of 11 during the heat wave 2006 which is even more pronounced during times of peak demand production costs accumulate to an additional but moderate 16 m due to the price increase producers gain from the heat wave whereas consumers disproportionately bear the costs carbon emissions in the german electricity sector increase during the heat wave the price and cost effects are more pronounced and increase significantly if assumptions on heat sensitive demand hydropower capacity net exports and capacity reductions are tightened these are potential additional effects of climate change hence if mitigation fails or is postponed globally the impacts on the current energy system are very likely to rise increases in feed in from renewable resources and demand side management can counter the effects to a considerable degree countries with a shift toward a renewable energy supply can be expected to be much less susceptible to cooling water scarcity than those with a high share of nuclear and coal fired power plants

strategic ignorance in a second price auction abstract suppose that bidders may publicly choose not to learn their values prior to a second price auction with costly bidding all equilibria with truthful bidding exhibit bidder ignorance when the number of bidders is sufficiently small ignorance considerations also affect the optimal reserve price

auctions with heterogeneous entry costs it is well known that if bidders have independent private values and homogeneous entry costs a rst or second price auction with a reserve price equal to the seller s value maximizes social surplus and seller revenue and leaves bidders with no surplus further in mixed strategy entry equilibria social surplus and seller revenue decrease with the number of bidders we show that when entry costs are heterogeneous and private information the revenue maximizing reserve price is above the seller s value a positive inspection fee and a reserve price equal to the seller s value generates even more revenue and in either case bidders capture informational rents further seller revenue and social surplus may either increase or decrease with the number of bidders nevertheless seller revenue is asymptotically the same whether entry costs are homogeneous or heterogeneous our results are framed in terms of screening values rather than reserve prices and apply to any standard auction

colluding on excluding abstract in an oligopoly characterized by barriers to re entry a finite horizon complete information convex costs and the presence of three identical firms i show that in subgame perfect equilibrium two of them the predators can choose to charge an initial price that is so low that the third the prey decides to exit immediately in this predatory pricing equilibrium the predators can enjoy higher profits than in the best collusive equilibrium with three firms thus a coalition of two firms can benefit from colluding on excluding

market dynamics of buyout acquisitions in the renewable energy and cleantech sectors an event study approach abstract this paper examined the market dynamics of mergers and acquisitions in the renewable energy and cleantech sectors we analyzed abnormal returns from 273 announced and 54 completed buyout acquisitions that took place between the years 1997 and 2014 and we used an event study methodology to test i whether renewable energy and cleantech deals experienced higher rates of abnormal returns than traditional energy and mining deals ii whether deal completions displayed similar effects as deal announcements and iii whether homogenous deals experienced higher rates of abnormal returns than heterogeneous deals our findings were i that the traditional energy and mining sector outperformed the renewable energy and cleantech sectors in homogenous deals ii that the deal completion effect followed the announcement effect in 9 of 12 cases and iii that homogenous deals outperformed heterogeneous deals to the best of our knowledge comparisons of deal announcements and deal completion effects in the renewable energy and cleantech sectors have not to date been previously examined in the literature

participation in auctions participation preparing offers in auction and procurement games e g bidding for spectrum rights or for control of corporations is very costly which calls for analyzing participation no less than how to play the games as part of equilibrium the result is a model with bi dimensional distribution of types as in jackson m o 1999 nonexistence of equilibria in auctions with both private and common values mimeo http www stanford edu jacksonm nonexist pdf and endogenous distribution of participants players with low production but high participation costs may decide not to participate forcing the auctioneer to pay higher than necessary prices to mitigate this phenomenon auctioneers may consider partially reimbursing participants for the costs they incur in preparing offers restricting attention to symmetric games we prove that the game we consider has a unique symmetric equilibrium with and without the reimbursement mechanism

estimating temperature effects on the italian electricity market abstract this paper provides empirical evidence of the effects that weather conditions exert on the electricity market offering a new contribution to the understanding of hourly regional price formation in the day ahead market in italy the empirical estimation uses a new data set of hourly data on both market variables and temperature variables there is a vast body of literature on the effect of temperature on final consumers and on wholesale electricity market equilibrium however the influence of temperature on the behavior of the wholesale electricity market has not been studied at the hourly level a new econometric estimation shows some evidence of different effects of temperature and provides a more accurate estimation of the hourly prices forecasting out of sample performance of the model is satisfactory the present results have welfare improving policy implications because appropriate policy strategies can help public decision makers promote regulation such as issuing public weather alert and designing contingent plans to face extreme weather conditions which improves production efficiency network management and consumer saving behavior taking specific weather conditions into account

the merger paradox a tournament based solution according to the well known merger paradox in a cournot market game mergers are generally unprofitable unless most firms merge the present paper proposes an optimal merger mechanism with this mechanism mergers are never unprofitable more profitable than in other known mechanism and in many cases welfare increasing the proposed mechanism assumes that merged firms continue to operate as independent subsidiaries that are rewarded according to a simple and commonly observed relative performance measure

on merger profitability in a cournot setting abstract in a setting where symmetric firms compete a la cour not and costsare linear the degree of concavity is identified as the main determinant of merger profitability this allows the results of salant et al 1983 and cheung 1992 to be generalized

the effect of climate change on electricity expenditures in massachusetts abstract climate change affects consumer expenditures by altering the consumption of and price for electricity previous analyses focus solely on the former which implicitly assumes that climate induced changes in consumption do not affect price but this assumption is untenable because a shift in demand alters quantity and price at equilibrium here we present the first empirical estimates for the effect of climate change on electricity prices translated through the merit order dispatch of existing capacity for generating electricity climate induced changes in daily and monthly patterns of electricity consumption cause non linear changes in electricity prices a 2 c increase in global mean temperature increases the prices for and consumption of electricity in massachusetts usa such that the average household s annual expenditures on electricity increase by about 12 commercial customers incur a 9 increase these increases are caused largely by higher prices for electricity whose impacts on expenditures are 1 3 and 3 6 fold larger than changes in residential and commercial consumption respectively this suggests that previous empirical studies understate the effects of climate change on electricity expenditures and that policy may be needed to ensure that the market generates investments in peaking capacity to satisfy climate driven changes in summer time consumption