Efficiency of a two-stage market for a fixed-capacity divisible resource

Two stage markets allow participants to trade resources like power both in a forward market (so consumption or production can be planned in advance), and in a spot market (allowing adjustments to be made contemporaneously with consumption and production.) However, two-stage markets introduce the possibility for a player to manipulate the market by creating an arbitrage between the two stages. We investigate the efficiency of two stage markets compared to that of a single stage market with strategic users. We show that the subgame perfect equilibrium efficiency of a two-stage market for a fixed, divisible resource and buyers with linear utility functions can be no worse than 82.8% compared to 75% for single stage markets. We also study the performance of two-stage market in the presence of uncertainty.