Title :
Short-term electricity market auction game analysis: uniform and pay-as-bid pricing
Author :
Son, You Seok ; Baldick, Ross ; Lee, Kwang-Ho ; Siddiqi, Shams
Author_Institution :
Lower Colorado River Authority, Austin, TX, USA
Abstract :
This paper analyzes the competing pricing mechanisms of uniform and pay-as-bid pricing in an electricity market. Game theory and auction theory are adopted to analyze the strategic behavior of a big player and a small player in a short-term auction game. Contrary to what would be expected from the conclusion of the "revenue equivalence theorem," we prove that for a two-player static game the Nash Equilibrium (NE) under pay-as-bid pricing will yield less total revenue in expectation than under uniform pricing when demand is inelastic. To confirm this theoretical result we simulated the model using a mixed-strategy NE solver. We extended the model to an elastic demand case and showed that pay-as-bid pricing also led to a larger expected total demand being served when demand is elastic.
Keywords :
commerce; game theory; power markets; pricing; Nash equilibrium; auction game analysis; auction theory; game theory; pay-as-bid pricing; revenue equivalence theorem; short-term electricity market; two-player static game; uniform pricing; Electricity supply industry; Electricity supply industry deregulation; Game theory; Monopoly; Nash equilibrium; Pricing; Switches; 65; Auction theory; electricity market; game theory; market design; market power;
Journal_Title :
Power Systems, IEEE Transactions on
DOI :
10.1109/TPWRS.2004.836192