Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/102191
Authors: 
Reguant, Mar
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 4811
Abstract: 
I extend multi-unit auction estimation techniques to a setting in which firms can express cost complementarities over time. In the context of electricity markets, I show how the auction structure and bidding data can be used to estimate these complementarities, which in these markets arise due to startup costs. I find that startup costs are substantial and that taking them into account helps better explain firm bidding strategies and production patterns. As in other dynamic settings, I find that startup costs limit the ability of firms to change production over time, exacerbating fluctuations in market prices. These fluctuations can induce estimates of market power that ignore dynamic costs to overstate markup volatility, with predicted markups that can be even negative in periods of low demand. I show how accounting for startup costs can provide a natural correction for these markup biases.
Subjects: 
auctions with complementarities
electricity markets
startup costs
market power
JEL: 
L13
L94
D44
Document Type: 
Working Paper

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