Understanding strategic bidding in restructured electricity markets
Subtitle: a case study of ERCOT
By: Ali Hortacsu, Steven L. Puller.
Contributors: Puller, Steven L.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 11123; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 11123.
Publisher: National Bureau of Economic Research
Published: 2005
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Electric utilities -- Prices -- Texas.; Electric utilities -- Deregulation -- Texas.; Letting of contracts -- Texas.
Description: "We examine the bidding behavior of firms competing on ERCOT, the hourly electricity balancing market in Texas.  We characterize an equilibrium model of bidding into this uniform-price divisible-good auction market.  Using detailed firm-level data on bids and marginal costs of generation, we find that firms with large stakes in the market performed close to theoretical benchmarks of static, profit-maximizing bidding derived from our model.  However, several smaller firms utilized excessively steep bid schedules that deviated significantly from our theoretical benchmarks, in a manner that could not be empirically accounted for by the presence of technological adjustment costs, transmission constraints, or collusive behavior.  Our results suggest that payoff scale matters in firms' willingness and ability to participate in complex, strategic market environments.  Finally, although smaller firms moved closer to theoretical bidding benchmarks over time, their bidding patterns contributed to productive inefficiency in this newly restructured market, along with efficiency losses due to the close-to optimal exercise of market power by larger firms"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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