Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/204758 
Year of Publication: 
2019
Series/Report no.: 
SITE Working Paper No. 47
Publisher: 
Stockholm School of Economics, Stockholm Institute of Transition Economics (SITE), Stockholm
Abstract: 
We study the use of fi nancial contracts as bid-coordinating device in multi-unit uniform price auctions. Coordination is required whenever firms face a volunteer's dilemma in pricing strategies: one firm (the "volunteer") is needed to increase the market clearing price. Volunteering, however, is costly, as inframarginal suppliers sell their entire capacity whereas the volunteer only sells residual demand. We identify conditions under which signing financial contracts solves this dilemma. We test our framework exploiting data on contract positions by large producers in the New York power market. Using a Monte Carlo simulation, we show that the contracting strategy is payoff dominant and provide estimates of the benefits of such strategy.
Subjects: 
Auctions
Coordination
Volunteers dilemma
Forward markets
power market
JEL: 
D21
D44
L41
Document Type: 
Working Paper

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