Strategic bidding in a primary reserve auction

Electricity grids are subject to a constant change of demand. If a power line is overloaded, the demand is rerouted to another line, which is then also likely to overload due to the sudden spike in voltage. Due to this cascading effect a grid-wide blackout is not at all improbable; one occurred in Italy in 2003. The costs of such a blackout are immense in today’s modern society. Transport and telecommunication systems have such a high power demand that a backup power generator system would come at a very high cost. To solve this, Germany requires the electricity grid operators to have Primary Reserve Capacity on standby..

Strategic bidding in an energy brokerage

The main contribution of this research is the definition, and the demonstration of use, of a framework for the development and evaluation of bidding strategies, for participants to use, in preparing and submitting bids to an energy brokerage market. The framework includes the rules under which the market operates, the different types of participants and their objectives, the factors that affect the bidding of the participants, strategies that consider these factors and achieve the objectives, and a simulator to simulate market conditions, including competition from other participants, with which to test these strategies;Strategies that attempt to include competitor behavior by using available market information are developed. A lower bound on the profit from bidding is derived, which is useful in providing an objective function that can be optimized using the limited information assumed to be available in this research. This is followed by derivations for optimal bids that maximize this lower bound, for different assumptions about the probability distribution of the competitors;The simulator is expected to be helpful in testing of the strategies. However, the strategies will be independent of the simulator, and will be applicable to participants who choose a different (presumably more advanced) tool for evaluation. The contribution of this research includes original ways to utilize the information generated by the simulator;Some of the results of the simulations performed using this simulator to test the strategies developed are presented and analyzed. Also, based on these results, some heuristics were developed to improve the performance of the strategies. Results from implementing these heuristics are also presented;A qualitative treatment of the scheduling factors that might affect bidding strategies is presented, followed by numerical examples to illustrate the effects. A treatment of risk preferences by using results from recent developments in utility theory and risk preference functions by researchers in economics, is presented. This is followed by the modeling of bidding objectives as expected utility maximizations, and the comparison of results from using this type of objective to using the expected profit maximization objective for various scheduling scenarios

Economic Insights from Internet Auctions: A Survey

This paper surveys recent studies of Internet auctions. Four main areas of research are summarized. First, economists have documented strategic bidding in these markets and attempted to understand why sniping, or bidding at the last second, occurs. Second, some researchers have measured distortions from asymmetric information due, for instance, to the winner's curse. Third, we explore research about the role of reputation in online auctions. Finally, we discuss what Internet auctions have to teach us about auction design.

Gaming in Combinatorial Clock Auctions

In recent years, Combinatorial Clock Auctions (CCAs) have been used around the world to allocate frequency spectrum for mobile telecom licenses. CCAs are claimed to significantly reduce the scope for gaming or strategic bidding. In this paper, we show, however, that CCAs significantly enhance the possibilities for strategic bidding. Real bidders in telecom markets are not only interested in the spectrum they win themselves and the price they pay for that, but also in the price competitors pay for that spectrum. Moreover, budget constraints play an important role. When these considerations are taken into account, CCAs provide bidders with significant gaming possibilities, resulting in high auction prices and problems associated with multiple equilibria and bankruptcy (given optimal bidding strategies)

Unsound strategic bidding and the competition perspective

Public procurement represents almost 17 % of the EUs gross domestic product (GDP) which is why it is important to understand what unsound strategic bidding (UNSB) is and what the consequences could be if not prevented. Furthermore, it is often bigger companies that are willing to take the risk that comes with utilizing UNSB. If such UNSB is not prevented it will probably distort competition in the long run. At first it will probably cause the prices to get lower on the market for the contracting authorities; but, later on it will enable bigger companies to expand and acquire larger market shares and finally cause fewer players in particular markets. So the question that arises is, how can this situation be prevented? UNSB isn’t per se illegal, at the moment. But, as this thesis will argue, competition will be distorted if UNSB is not prevented and, therefore, the legislator should overlook the interaction between competition and public procurement. The Swedish public procurement act (LOU) is a procedural law that explains how the contracting authorities should execute a procurement procedure and there are certain remedies in order to stop certain types of the UNSB behaviour, if they become noticed. But, how can the UNSB types that are not solved by LOU be prevented? In my opinion competition law could be a solution. Competition law will discourage companies from using bid rigging and all other sorts of anti-competitive agreements that could occur under a public procurement procedure. My opinion is that these two systems should coordinate with each other to ensure effective competition. Furthermore, it should be noted that all UNSB problems cannot be prevented, currently, under LOU and therefore there is a need to educate the personnel at the contracting authorities so as they might detect such UNSB behaviours as well as to do competition assessments. These potential remedies wouldprevent the UNSB behaviours before they occur. Notably, the remedies that are under LOU, especially those for exclusion of a supplier and rejection of abnormally low tenders, are needed to be coordinated with the provisions under competition law especially ch. 2 § 1 and 7 in the Swedish competition act in order for the prevention to be successful

The Supply Function Equilibrium and Its Policy Implications for Wholesale Electricity Auctions

The supply function equilibrium provides a game-theoretic model of strategic bidding in oligopolistic wholesale electricity auctions. This paper presents an intuitive account of current understanding and shows how welfare losses depend on the number of firms in the market and their asymmetry. Previous results and general recommendations for divisible-good/multi-unit auctions provides guidance on the design of the auction format; setting the reservation price; the rationing rule; and restrictions on the offer curves in wholesale electricity auctions.Wholesale Electricity Markets; Supply Function Equilibria; Competition Policy