Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 2005:23: Some Inequalities related to the analysis of electricity auctions

Peter Hästö () and Pär Holmberg ()
Additional contact information
Peter Hästö: Department of Mathematics and Statistics, Postal: Department of Mathematics and Statistics, P.O. Box 68, FI-00014 University of Helsinki, Finland
Pär Holmberg: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: Most balaning markets of electric power are organized as uniform-price auctions. In 2001, the balancing market of England and Wales switched to a pay-as-bid auction with the intention of reducing wholesale electricity prices. Numerical simultations of an electricity auction model have indicated that this should lead to decreased average prices. In this article we prove two inequalities which give an analytic proof of this claim in the same model.

Keywords: supply function equilibrium; uniform-price auction; pay-as-bid auctions; discriminatory auction; oligopoly; capacity constraint; wholesale electricity markets; inequalities

JEL-codes: C62; D43; D44; L11; L13; L94

7 pages, August 26, 2005

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