The Electricity Contract Market in England and Wales

Green, Richard

doi:10.1111/1467-6451.00092

Cited by 301 publications

(268 citation statements)

References 8 publications

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“…To this end, in this section we study a solution approach that employs a powerful market tool, namely uniform-price (divisible good) auctions. Uniform-price auctions for divisible goods are implemented in practice in many markets, e.g., for federal treasury bill sales (Malvey et al 1997), and in electricity procurement markets (Green 1999, Wilson 2002. Specifically, in this mechanism the seller submits a supply curve 1605 and each buyer submits a demand curve.…”

Section: Coordination Under Demand Forecast Investment Observabilitymentioning

confidence: 99%

Do Firms Invest in Forecasting Efficiently? The Effect of Competition on Demand Forecast Investments and Supply Chain Coordination

Shin

Tunca

2010

Operations Research

160

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We study the effect of downstream competition on incentives for demand forecast investments in supply chains. We show that with common pricing schemes, such as wholesale price or two-part tariffs, downstream firms under Cournot competition overinvest in demand forecasting. Analyzing the determinants of overinvestment, we demonstrate that under wholesale price contracts and two-part tariffs, total demand forecast investment can be very significant, and as a result, the supply chain can suffer substantial losses. We show that an increased number of competing retailers and uncertainty in consumer demand tend to increase inefficiency, whereas increased consumer market size and demand forecast costs reduce the loss in supply chain surplus. We identify the causes of inefficiency, and to coordinate the channel with forecast investments, we explore contracts in the general class of market-based contracts used in practice. When retailers' forecast investments are not observable, such a contract that employs an index-price can fully coordinate the supply chain. When forecast investments are observable to others, however, the retailers engage in an "arms race" for forecast investment, which can result in a significant increase in overinvestment and reduction in supply chain surplus. Furthermore, in that case, simple market-based contracts cannot coordinate the supply chain. To solve this problem, we propose a uniform-price divisiblegood auction-based contracting scheme, which can achieve full coordination when forecast investments are observable. We also demonstrate the desirable properties for implementability of our proposed coordinating contracting schemes, including incentive-compatible and reliable demand forecast information revelation by the retailers, and being regret-free.

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Section: Coordination Under Demand Forecast Investment Observabilitymentioning

confidence: 99%

Do Firms Invest in Forecasting Efficiently? The Effect of Competition on Demand Forecast Investments and Supply Chain Coordination

Shin

Tunca

2010

Operations Research

160

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“…Firms' contracting decisions are made simultaneously. Similar to Allaz and Vila (1993), Newbery (1998), Green (1999) etc., producers disclose their contracting decisions. Riskneutral, non-strategic counterparties (e.g.…”

Section: Modelmentioning

confidence: 93%

“…Newbery (1998) also analyzes the relation between contracts and entry, 11 while we and the other papers in this review focus on the short-run e ects of contracting. Green (1999) Allaz and Vila (1993) also show that the perfectly competitive outcome is a subgame perfect Nash equilibrium if contracting is repeated an in nite number of rounds. However, Ferreira (2003) proves that this outcome is not renegotiation-proof, while the monopolistic outcome is.…”

Section: Literature Reviewmentioning

confidence: 98%

Relaxing competition through speculation: Committing to a negative supply slope

Holmberg

Willems

2015

Journal of Economic Theory

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe demonstrate how suppliers can take strategic speculative positions in derivatives markets to soften competition in the spot market. In our game, suppliers rst choose a portfolio of call options and then compete with supply functions. In equilibrium rms sell forward contracts and buy call options to commit to downward sloping supply functions. Although this strategy is risky, it reduces the elasticity of the residual demand of competitors, who increase their mark-ups in response. We show that this type of strategic speculation increases the level and volatility of commodity prices and decreases welfare.

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“…It means that, contrary to results frequently observed in the literature, there is a possible situation where forward contracts, instead of reducing the spot market power, can be, in fact, affected by it (since P C is potentially affected by market power). For example, Allaz and Villa (1993), Newbery (1998), Green (1999) and Bushnell (2007) observe the importance of existing forward contracts to reduce market power. This exercise shows that if the market becomes less concentrated the forward curve can be shifted or rotated.…”

Section: Dynamics and Forward Pricesmentioning

confidence: 99%

Can market power in the electricity spot market translate into market power in the hedge market?

Bragança

Daglish

2016

Energy Economics

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Electricity is a non-storable commodity frequently traded in complex markets characterized by oligopolistic structures and uniform-price auctions. These particularities confer to electricity prices idiosyncratic patterns not addressed by the usual commodity pricing literature. This paper allows for oligopoly, vertical integration and uniform-price auction and derives a linear equilibrium relationship between spot prices and state variables affecting firms' costs and demand under usual functional simplifications. It applies a two-factor forward pricing model over the equilibrium spot price process, and shows that forward prices can be positively affected by spot market power. Thus, hedge prices may be affected by market power as it appears in the spot market.

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The Electricity Contract Market in England and Wales

Cited by 301 publications

References 8 publications

Do Firms Invest in Forecasting Efficiently? The Effect of Competition on Demand Forecast Investments and Supply Chain Coordination

Do Firms Invest in Forecasting Efficiently? The Effect of Competition on Demand Forecast Investments and Supply Chain Coordination

Relaxing competition through speculation: Committing to a negative supply slope

Can market power in the electricity spot market translate into market power in the hedge market?

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