Do pay-as-bid auctions favor collusion? Evidence from Germany's market for reserve power

Arbeitspapier

We analyze a drastic price increase in the German auction market for reserve power, which did not appear to be driven by increased costs. Studying the market structure and individual bidding strategies, we find evidence for collusive behavior in an environment with repeated auctions, pivotal suppliers and inelastic demand. The price increase can be traced back to an abuse of the auction's pay-as-bid mechanism by the two largest firms. In contrast to theoretical findings, we show that pay-as-bid auctions do not necessarily reduce incentives for strategic capacity withholding and collusive behavior, but can even increase them.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ZEW Discussion Papers ; No. 13-035

Classification and Topics

• Classification: Wirtschaft ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Auctions ; Market Design ; Production, Pricing, and Market Structure; Size Distribution of Firms ; Oligopoly and Other Imperfect Markets
• Subject: Auctions ; Collusion ; Market Power ; Energy Markets ; Reserve Power ; Balancing Power

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Heim, Sven ; Götz, Georg
• Event: Veröffentlichung
• (who): Zentrum für Europäische Wirtschaftsforschung (ZEW)
• (where): Mannheim
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/74798
• URN: urn:nbn:de:bsz:180-madoc-338135
• Last update: 10.03.2025, 11:43 AM CET