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Understanding strategic bidding in multi‐unit auctions: a case study of the Texas electricity spot market

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  • Ali Hortaçsu
  • Steven L. Puller
Abstract
We examine the bidding behavior of firms in the Texas electricity spot market, where bidders submit hourly supply schedules to sell power. We characterize an equilibrium model of bidding and use detailed firm‐level data on bids and marginal costs to compare actual bidding behavior to theoretical benchmarks. Firms with large stakes in the market performed close to the theoretical benchmark of static profit maximization. However, smaller firms utilized excessively steep bid schedules significantly deviating from this benchmark. Further analysis suggests that payoff scale has an important effect on firms' willingness and ability to participate in complex, strategic market environments.

Suggested Citation

  • Ali Hortaçsu & Steven L. Puller, 2008. "Understanding strategic bidding in multi‐unit auctions: a case study of the Texas electricity spot market," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 86-114, March.
    • Handle: RePEc:bla:randje:v:39:y:2008:i:1:p:86-114
    DOI: 10.1111/j.0741-6261.2008.00005.x
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    References listed on IDEAS

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