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Do pay-as-bid auctions lead to lower electricity prices? (2009)

The intention of the pay-as-bid auction, as used in the electricity market of Great Britain, is to lower prices. This paper characterizes supply function equilibria (SFE) in pay-as-bid auctions and compares them to SFE in uniform-price auctions. It is shown that offers shift upwards in the pay-as-bid auction, but still electricity consumers get a larger surplus than in the uniform-price auction. A potential problem is that pure-strategy SFE in the pay-as-bid auction might not exist.

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Pär Holmberg

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