Do pay-as-bid auctions favor collusion? - Evidence from Germany’s market for reserve power

We analyze a drastic price increase in the German auction market for reserve power, which did not appear to be driven by increased costs. Studying the market structure and individual bidding strategies, we find evidence for collusive behavior in an environment with repeated auctions, pivotal supplie...

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Bibliographic Details
Published in:MAGKS - Joint Discussion Paper Series in Economics (Band 24-2013)
Main Authors: Heim, Sven, Götz, Georg
Format: Article
Language:English
Published: 2013
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Online Access:PDF Full Text
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Summary:We analyze a drastic price increase in the German auction market for reserve power, which did not appear to be driven by increased costs. Studying the market structure and individual bidding strategies, we find evidence for collusive behavior in an environment with repeated auctions, pivotal suppliers and inelastic demand. The price increase can be traced back to an abuse of the auction’s pay-as-bid mechanism by the two largest firms. In contrast to theoretical findings, we show that pay-as-bid auctions do not necessarily reduce incentives for strategic capacity withholding and collusive behavior, but can even increase them.
ISSN:1867-3678
DOI:10.17192/es2024.0187