Why Do Firms Bid Stepwise Rather Than Uniform in a Pay-as-bid<br/>Electricity Market?

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Why Do Firms Bid Stepwise Rather Than Uniform in a Pay-as-bid
Electricity Market?

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Type of Document: M.Sc. Thesis
Language: Farsi
Document No: 50873 (44)
University: Sharif University of Technology
Department: Management and Economics
Advisor(s): Rahmati, Mohammd Hossein; Alishahi, Kasra
Abstract:
Why firms does not submit several steps in their bids curve? In this paper, we present a mathematical model for the behavior of power plants in a Pay-as-Bid auction market. According to this model, in the case that the power plant has a fixed marginal cost, the optimal behavior for him is to offer only one price, but in the case of linear marginal cost, bidding one price is not an optimal price, and with increasing the slope of this function, the number of steps and their price level will increase. We also show that increasing the level of competition in the market will force the plants to lower the price level and the number of steps. The model of this paper also predicts the factors influencing the maximum proposed price of power plants by the coefficients of the linear marginal cost function and the total capacity of power plants. Finally, based on Iran's electricity market data and regression models, the predictions of the tested model and their validity are confirmed
Keywords:
Electricity Market ; Supply Function Model ; First-Price Sealed-Bid Auction ; Marginal Cost Function ; Uniform Price Auction

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