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An Auction Story: How Simple Bids Struggle with Uncertainty

Discussion Papers 1765, 30 S.

Jörn C. Richstein, Casimir Lorenz, Karsten Neuhoff


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Short-term electricity markets are key to an efficient production by generation units. We develop a two-period model to assess different bidding formats to determine for each bidding format the optimal bidding strategy of competitive generators facing price-uncertainty. We compare the results for simple bidding, block bidding and multi-part bidding and find that even under optimal simple and block bidding generators face the risk of ex-post suboptimal solutions, whereas in multi-part bidding these do not occur. This points to efficiency gains of multi-part bidding in the presence of uncertainty in electricity markets.

Jörn C. Richstein

Senior Research Associate / Thematic Lead Electricity Markets in the Climate Policy Department

Karsten Neuhoff

Head of Department in the Climate Policy Department

JEL-Classification: D44;D47;Q48;L94
Keywords: market design, electricity markets, bidding formats, auctions
Frei zugängliche Version: (econstor)