Abstract for “Price and Quantity Discovery without Commitment”:
Wholesale electricity markets solve a complex allocation problem: electricity is not storable, demand is uncertain, and production involves dynamic cost considerations and indivisibilities. The New Zealand wholesale electricity market attempts to solve this complex allocation problem by using an indicative price and quantity discovery mechanism that ends at dispatch. Can such a market mechanism without commitment provide useful information? We document that indicative prices and quantities are increasingly informative of the final prices and quantities and that bid revisions are consistent with information-based updating. We argue that the reason why the predispatch market is informative despite the lack of commitment is that it generates private benefits in terms of improved intertemporal optimization of production plans.
Abstract for “The benefits and costs of information: Evidence from the New Zealand wholesale electricity market”:
In the presence of uncertainty, information can both enhance efficiency and facilitate the exertion of market power. We explore this trade-off in the context of the New Zealand wholesale electricity market which operates a no-commitment predispatch market aimed at aggregating information before final bids are submitted. We develop a simple model that captures the stylized features of the environment and crystalizes the impact of information on short-term (intraday) decisions by market participants. We show that the time profile of intraday prices can serve as a metric for system-wide costs and use it to decompose the impact of information into an efficiency benefit and a strategic effect. We find that most of the time the strategic effect neutralizes the efficiency benefits of information and identify those circumstances when the efficiency benefits are largest and when the strategic costs are largest.
PaperLink (coming soon)
Stern IO Seminar Fall 2023 Schedule
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