Tacit collusion in the frequently repeated multi-unit uniform price auction for wholesale electricity in England and Wales

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    Abstract

    Tacit collusion between National Power and PowerGen, the dominant generators in England and Wales for most of the 1990s, was widely speculated but was not definitively proven. In the event of a legal determination, the best available evidence is a test of suspicious patterns of bidding behavior. The methodology has two stages: the first is to show that the suspects behave "differently" from the rest, which are assumed competitive; the second stage is to ask whether or not strategies of suspects affect one another. Results: the impact of suspects on the aggregate bid function can not be explained away by costs and common market events, and a seemingly unrelated regression (SUR) on strategies of the suspects reveals bid inter-dependence and co-ordination on demand trends. A quarter of the dynamic indicators support an inference of tacit collusion. The existence of multiple equilibria in supergames, however, prevents a conclusive statement.
    Original languageEnglish
    Pages (from-to)257-273
    Number of pages17
    JournalEuropean Journal of Law and Economics
    Volume13
    Issue number3
    DOIs
    Publication statusPublished - 2002

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    auction
    electricity
    event
    interdependence
    regression
    Uniform price auction
    England
    Electricity
    Tacit collusion
    Bid
    Wales
    demand
    methodology
    market
    trend
    costs
    evidence
    Multiple equilibria
    Bidding behavior
    Interdependence

    Cite this

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    abstract = "Tacit collusion between National Power and PowerGen, the dominant generators in England and Wales for most of the 1990s, was widely speculated but was not definitively proven. In the event of a legal determination, the best available evidence is a test of suspicious patterns of bidding behavior. The methodology has two stages: the first is to show that the suspects behave {"}differently{"} from the rest, which are assumed competitive; the second stage is to ask whether or not strategies of suspects affect one another. Results: the impact of suspects on the aggregate bid function can not be explained away by costs and common market events, and a seemingly unrelated regression (SUR) on strategies of the suspects reveals bid inter-dependence and co-ordination on demand trends. A quarter of the dynamic indicators support an inference of tacit collusion. The existence of multiple equilibria in supergames, however, prevents a conclusive statement.",
    author = "R.E.A. Macatangay",
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    language = "English",
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