Competition with forward contracts: a laboratory analysis motivated by electricity market design

We use experiments to study the efficiency effects for a market as a whole of adding the possibility of forward contracting to a pre-existing spot market. We deal separately with the cases where spot market competition is in quantities and where it is in supply functions. In both cases we compare the effect of adding a contract market with the introduction of an additional competitor, changing the market structure from a triopoly to a quadropoly. We find that, as theory suggests, for both types of competition the introduction of a forward market significantly lowers prices. The combination of supply function competition with a forward market leads to high efficiency levels.

Reforming the Market Design of EU Electricity Markets: Addressing the Challenges of a Low-Carbon Power Sector. CEPS Task Force Report, 27 July 2015

This CEPS Task Force Report focuses on whether there is a need to adapt the EU’s electricity market design and if so, the options for doing so. In a first step, it analyses the current market trends by distinguishing between their causes and their consequences. Then, the current blueprint of EU power market design – the target model – is briefly introduced, followed by a discussion of the shortcomings of the current approach and the challenges in finding suitable solutions. The final chapter offers an inventory of solutions differentiating between recommendations shared among Task Force members and non-consensual options.

AstonCAT-plus:an efficient specialist for the TAC market design tournament

This paper describes the strategies used by AstonCAT-Plus, the post-tournament version of the specialist designed for the TAC Market Design Tournament 2010. It details how AstonCATPlus accepts shouts, clears market, sets transaction prices and charges fees. Through empirical evaluation, we show that AstonCAT-Plus not only outperforms AstonCAT (tournament version) significantly but also achieves the second best overall score against some top entrants of the competition. In particular, it achieves the highest allocative efficiency, transaction success rate and average trader profit among all the specialists in our controlled experiments.

Essays on market design and regulation in electricity systems

This thesis discusses market design and regulation in electricity systems, focusing on the information exchange of the regulated grid firm and the generation firms as well as the regulation of the grid firm. In the first chapter, an economic framework is developed to consistently analyze different market designs and the information exchange between the grid firm and the generation firms. Perfect competition between the generation firms and perfect regulation of the grid firm is assumed. A numerical algorithm is developed and its feasibility demonstrated on a large-scale problem. The effects of different market designs for the Central Western European (CWE) region until 2030 are analyzed. In the second chapter, the consequences of restricted grid expansion within the current market design in the CWE region until 2030 are analyzed. In the third chapter the assumption of efficient markets is modified. The focus of the analysis is then, whether and how inefficiencies in information availability and processing affect different market designs. For different parameter settings, nodal and zonal pricing are compared regarding their welfare in the spot and forward market. In the fourth chapter, information asymmetries between the regulator and the regulated firm are analyzed. The optimal regulatory strategy for a firm, providing one output with two substitutable inputs, is defined. Thereby, one input and the absolute quantity of inputs is not observable for the regulator. The result is then compared to current regulatory approaches.

Essays in Market Design

In this dissertation, I study three problems in market design: the allocation of resources to schools using deferred acceptance algorithms, the demand reduction of employees on centralized labor markets, and the alleviation of traffic congestion. I show how institutional and behavioral considerations specific to each problem can alleviate several practical limitations faced by current solutions. For the case of traffic congestion, I show experimentally that the proposed solution is effective. In Chapter 1, I investigate how school districts could assign resources to schools when it is desirable to provide stable assignments. An assignment is stable if there is no student currently assigned to a school that would prefer to be assigned to a different school that would admit him if it had the resources. Current assignment algorithms assume resources are fixed. I show how simple modifications to these algorithms produce stable allocations of resources and students to schools. In Chapter 2, I show how the negotiation of salaries within centralized labor markets using deferred acceptance algorithms eliminates the incentives of the hiring firms to strategically reduce their demand. It is well-known that it is impossible to eliminate these incentives for the hiring firms in markets without negotiation of salaries. Chapter 3 investigates how to achieve an efficient distribution of traffic congestion on a road network. Traffic congestion is the product of an externality: drivers do not consider the cost they impose on other drivers by entering a road. In theory, Pigouvian prices would solve the problem. In practice, however, these prices face two important limitations: i) the information required to calculate these prices is unavailable to policy makers and ii) these prices would effectively be new taxes that would transfer resources from the public to the government. I show how to construct congestion prices that retrieve the required information from the drivers and do not transfer resources to the government. I circumvent the limitations of Pigouvian prices by assuming that individuals make some mistakes when selecting routes and have a tendency towards truth-telling. Both assumptions are very robust observations in experimental economics.

A proteção cumulativa do design pelo Direito de Autor e pelo Direito da Propriedade Industrial: o caso especial do contrato de trabalho

Dissertação de mestrado em Direito dos Contratos e das Empresas

On advancing business intelligence in the electricity retail market

In recent decades, business intelligence (BI) has gained momentum in real-world practice. At the same time, business intelligence has evolved as an important research subject of Information Systems (IS) within the decision support domain. Today’s growing competitive pressure in business has led to increased needs for real-time analytics, i.e., so called real-time BI or operational BI. This is especially true with respect to the electricity production, transmission, distribution, and retail business since the law of physics determines that electricity as a commodity is nearly impossible to be stored economically, and therefore demand-supply needs to be constantly in balance. The current power sector is subject to complex changes, innovation opportunities, and technical and regulatory constraints. These range from low carbon transition, renewable energy sources (RES) development, market design to new technologies (e.g., smart metering, smart grids, electric vehicles, etc.), and new independent power producers (e.g., commercial buildings or households with rooftop solar panel installments, a.k.a. Distributed Generation). Among them, the ongoing deployment of Advanced Metering Infrastructure (AMI) has profound impacts on the electricity retail market. From the view point of BI research, the AMI is enabling real-time or near real-time analytics in the electricity retail business. Following Design Science Research (DSR) paradigm in the IS field, this research presents four aspects of BI for efficient pricing in a competitive electricity retail market: (i) visual data-mining based descriptive analytics, namely electricity consumption profiling, for pricing decision-making support; (ii) real-time BI enterprise architecture for enhancing management’s capacity on real-time decision-making; (iii) prescriptive analytics through agent-based modeling for price-responsive demand simulation; (iv) visual data-mining application for electricity distribution benchmarking. Even though this study is from the perspective of the European electricity industry, particularly focused on Finland and Estonia, the BI approaches investigated can: (i) provide managerial implications to support the utility’s pricing decision-making; (ii) add empirical knowledge to the landscape of BI research; (iii) be transferred to a wide body of practice in the power sector and BI research community.

The Impact of Electrical Capacity Market Mechanisms on Capacity Mobility and End Use Customer Pricing

Potential impacts of electrical capacity market design on capacity mobility and end use customer pricing are analyzed. Market rules and historical evolution are summarized to provide a background for the analysis. The summarized rules are then examined for impacts on capacity mobility. A summary of the aspects of successful capacity markets is provided. Two United States market regions are chosen for analysis based upon their market history and proximity to each other. The MISO region is chosen due to recent developments in capacity market mechanisms. The PJM region neighbors the MISO region and is similar in size and makeup. The PJM region has had a capacity market mechanism for over a decade and allows for a controlled comparison of the MISO region’s developments. Capacity rules are found to have an impact on the mobility of capacity between regions. Regulatory restrictions and financial penalties for the movement of capacity between regions are found which effectively hinder such mobility. Capacity market evolution timelines are formed from the historical evolution previously summarized and compared to historical pricing to inspect for a correlation. No direct and immediate impact on end use customer pricing was found due to capacity market design. The components of end use customer pricing are briefly examined.

The housing market channel of monetary policy transmission in the Euro area

Purpose – The purpose of this paper is to explore the role of the housing market in the monetary policy transmission to consumption among euro area member states. It has been argued that the housing market in one country is then important when its mortgage market is well developed. The countries in the euro area follow unitary monetary policy, however, their housing and mortgage markets show some heterogeneity, which may lead to different policy effects on aggregate consumption through the housing market. Design/methodology/approach – The housing market can act as a channel of monetary policy shocks to household consumption through changes in house prices and residential investment – the housing market channel. We estimate vector autoregressive models for each country and conduct a counterfactual analysis in order to disentangle the housing market channel and assess its importance across the euro area member states. Findings – We find little evidence for heterogeneity of the monetary policy transmission through house prices across the euro area countries. Housing market variations in the euro area seem to be better captured by changes in residential investment rather than by changes in house prices. As a result we do not find significantly large house price channels. For some of the countries however, we observe a monetary policy channel through residential investment. The existence of a housing channel may depend on institutional features of both the labour market or with institutional factors capturing the degree of household debt as is the LTV ratio. Originality/value – The study contributes to the existing literature by assessing whether a unitary monetary policy has a different impact on consumption across the euro area countries through their housing and mortgage markets. We disentangle monetary-policy-induced effects on consumption associated with variations on the housing markets due to either house price variations or residential investment changes. We show that the housing market can play a role in the monetary transmission mechanism even in countries with less developed mortgage markets through variations in residential investment.

Electricity without borders: a plan to make the internal market work. Bruegel Blueprint Series 20, 5 September 2013

The most straightforward European single energy market design would entail a European system operator regulated by a single European regulator. This would ensure the predictable development of rules for the entire EU, significantly reducing regulatory uncertainty for electricity sector investments. But such a first-best market design is unlikely to be politically realistic in the European context for three reasons. First, the necessary changes compared to the current situation are substantial and would produce significant redistributive effects. Second, a European solution would deprive member states of the ability to manage their energy systems nationally. And third, a single European solution might fall short of being well-tailored to consumers’ preferences, which differ substantially across the EU. To nevertheless reap significant benefits from an integrated European electricity market, we propose the following blueprint: First, we suggest adding a European system-management layer to complement national operation centres and help them to better exchange information about the status of the system, expected changes and planned modifications. The ultimate aim should be to transfer the day-to-day responsibility for the safe and economic operation of the system to the European control centre. To further increase efficiency, electricity prices should be allowed to differ between all network points between and within countries. This would enable throughput of electricity through national and international lines to be safely increased without any major investments in infrastructure. Second, to ensure the consistency of national network plans and to ensure that they contribute to providing the infrastructure for a functioning single market, the role of the European ten year network development plan (TYNDP) needs to be upgraded by obliging national regulators to only approve projects planned at European level unless they can prove that deviations are beneficial. This boosted role of the TYNDP would need to be underpinned by resolving the issues of conflicting interests and information asymmetry. Therefore, the network planning process should be opened to all affected stakeholders (generators, network owners and operators, consumers, residents and others) and enable the European Agency for the Cooperation of Energy Regulators (ACER) to act as a welfare-maximising referee. An ultimate political decision by the European Parliament on the entire plan will open a negotiation process around selecting alternatives and agreeing compensation. This ensures that all stakeholders have an interest in guaranteeing a certain degree of balance of interest in the earlier stages. In fact, transparent planning, early stakeholder involvement and democratic legitimisation are well suited for minimising as much as possible local opposition to new lines. Third, sharing the cost of network investments in Europe is a critical issue. One reason is that so far even the most sophisticated models have been unable to identify the individual long-term net benefit in an uncertain environment. A workable compromise to finance new network investments would consist of three components: (i) all easily attributable cost should be levied on the responsible party; (ii) all network users that sit at nodes that are expected to receive more imports through a line extension should be obliged to pay a share of the line extension cost through their network charges; (iii) the rest of the cost is socialised to all consumers. Such a cost-distribution scheme will involve some intra-European redistribution from the well-developed countries (infrastructure-wise) to those that are catching up. However, such a scheme would perform this redistribution in a much more efficient way than the Connecting Europe Facility’s ad-hoc disbursements to politically chosen projects, because it would provide the infrastructure that is really needed.

Consumer ethnocentrism in the German market

Purpose - International marketing researchers have long been concerned with determining whether consumers are predisposed towards a preference for domestic products, as opposed to foreign products. The purpose of this paper is to assess such a domestic-country bias (DCB) in the German market. Design/methodology/approach - This study empirically investigates DCB across six countries and 14 product categories in the Germany market. By so doing, it replicates an earlier study conducted in the UK. Ordered logit analysis was employed as well as multidimensional unfolding to present results. Findings - As in the study conducted in the UK, there is in general a strong DCB in the German market. However, it differs largely across the 14 product categories. Results indicate that consumer preference rankings can best be explained by a combination of demographic variables and country-of-origin effects. Practical implications - Results indicate that domestic firms in Germany can well rely on a safeguarding effect when marketing their products. At the same time, managers from foreign countries cannot rely on consumer ethnocentrism as a reliable indicator of the inclination of consumers to downgrade their products. Originality/value - This study confirms some findings from the UK. However, results from Germany indicate that at least economic competitiveness of the country-of-origin plays a role in determining respondents' judgments. This study underlines the value of replication studies in cross-cultural settings in particular.

Asymmetric demand information in uniform and discriminatory call auctions: an experimental analysis motivated by electricity markets

We study the outcomes of experimental multi-unit uniform and discriminatory auctions with demand uncertainty. Our study is motivated by the ongoing debate about market design in the electricity industry. Our main aim is to compare the effect of asymmetric demand-information between sellers on the performance of the two auction institutions. In our baseline conditions all sellers have the same information, whereas in our treatment conditions some sellers have better information than others. In both information conditions we find that average transaction prices and price volatility are not significantly different under the two auction institutions. However, when there is asymmetric information among sellers the discriminatory auction is significantly less efficient. These results are not in line with the typical arguments made in favor of discriminatory pricing in electricity industries; namely, lower consumer prices and less price volatility. Moreover, our results provide some indication that discriminatory auctions reduce technical efficiency relative to uniform auctions.

Trade of permits for greenhouse gas emissions; bilateral trade need not be the answer

The Kyoto Protocol sets national quotas on CO2 emissions and allows international trade of these quotas. We argue that this trade is characterized by asymmetric, identity-dependent externalities, and show that bilateral trade may not be sufficient for an efficient allocation of emissions. We derive conditions under which bilateral trade does improve the allocation of permits. The conditions are strong. In this sense, we argue that, for emissions permits, market design matters.