Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/230025
Authors: 
Le Coq, Chloé
Schwenen, Sebastian
Year of Publication: 
2020
Citation: 
[Journal:] Journal of Economics & Management Strategy [ISSN:] 1530-9134 [Volume:] 29 [Issue:] 2 [Pages:] 241-259
Abstract: 
We study the use of financial 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
electricity
forward markets
volunteer's dilemma
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/4.0/
Document Type: 
Article
Document Version: 
Published Version

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