Controlling market power and price spikes in electricity networks: Demand-side bidding.

Abstract:

:In this article we report an experiment that examines how demand-side bidding can discipline generators in a market for electric power. First we develop a treatment without demand-side bidding; two large firms are allocated baseload and intermediate cost generators such that either firm might unilaterally withhold the capacity of its intermediate cost generators from the market to benefit from the supracompetitive prices that would result from only selling its baseload units. In a converse treatment, ownership of some of the intermediate cost generators is transferred from each of these firms to two other firms such that no one firm could unilaterally restrict output to spawn supracompetitive prices. Having established a well controlled data set with price spikes paralleling those observed in the naturally occurring economy, we also extend the design to include demand-side bidding. We find that demand-side bidding completely neutralizes the exercise of market power and eliminates price spikes even in the presence of structural market power.

authors

Rassenti SJ,Smith VL,Wilson BJ

doi

10.1073/pnas.0437942100

keywords:

subject

Has Abstract

pub_date

2003-03-04 00:00:00

pages

2998-3003

issue

5

eissn

0027-8424

issn

1091-6490

journal_volume

100

pub_type

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