Antón García-Díaz and Pedro L. Marín

"Strategic bidding in electricity pools with short-lived bids: an application to the Spanish market"
JEL codes: L13, L94, K23
Keywords: electricity pools, bids, market power

Abstract: We generalize von der Fehr and Harbord's (1993) multi-unit auction model for the case of a deterministic demand allowing for any technology mix and elastic demand in order to account for demand side bidding. We obtain a general characterization of the equilibrium and show that this is bounded above by the Cournot equilibrium. We simulate the Spanish electricity pool and show that price-cost margins substantially increased with the 1996 merger that took the industry from a six firm structure to its current four firm structure. This is almost equivalent to a nearly symmetric duopoly. The introduction of demand-side bidding is not likely to change this situation.