An experimental analysis of the effects of automated mitigation procedures on investment and prices in wholesale electricity markets

Lynne Kiesling; Bart J. Wilson

doi:10.1007/s11149-006-9018-4

An experimental analysis of the effects of automated mitigation procedures on investment and prices in wholesale electricity markets

Lynne Kiesling^*, Bart J. Wilson

^*Corresponding author for this work

ISEN - Institute for Sustainability and Energy at Northwestern

Research output: Contribution to journal › Article › peer-review

10 Scopus citations

Abstract

In this paper we report the findings of an economic experiment that examines the effects of an automated mitigation procedure (AMP) on prices and capacity investment choices of suppliers in a wholesale electricity market. Specifically, we examine the effects of different market power incentives on markets with and without an AMP. While we find that the AMP does not affect overall investment in capacity, the most significant determinant of long-run prices is investment in new capacity. The AMP also does not reduce long-run prices relative to markets without an AMP. Furthermore, our participants successfully manipulated the AMP's trigger price.

Original language	English (US)
Pages (from-to)	313-334
Number of pages	22
Journal	Journal of Regulatory Economics
Volume	31
Issue number	3
DOIs	https://doi.org/10.1007/s11149-006-9018-4
State	Published - Jun 2007

Keywords

Automated mitigation procedures
Electric power markets
Investment
Price caps

ASJC Scopus subject areas

Economics and Econometrics

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10.1007/s11149-006-9018-4

Cite this

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title = "An experimental analysis of the effects of automated mitigation procedures on investment and prices in wholesale electricity markets",

abstract = "In this paper we report the findings of an economic experiment that examines the effects of an automated mitigation procedure (AMP) on prices and capacity investment choices of suppliers in a wholesale electricity market. Specifically, we examine the effects of different market power incentives on markets with and without an AMP. While we find that the AMP does not affect overall investment in capacity, the most significant determinant of long-run prices is investment in new capacity. The AMP also does not reduce long-run prices relative to markets without an AMP. Furthermore, our participants successfully manipulated the AMP's trigger price.",

keywords = "Automated mitigation procedures, Electric power markets, Investment, Price caps",

author = "Lynne Kiesling and Wilson, {Bart J.}",

note = "Funding Information: Acknowledgements We thank Gavin Ekins and HyeYoon Chung for research assistance in running these experiments, Jeffrey Kirchner for writing the software, and Dean Williamson, Michael Giberson, the editor, and two anonymous referees for helpful comments. The authors gratefully acknowledge financial support from the International Foundation for Research in Experimental Economics, the Searle Fund for Policy Research at Northwestern University, and the Federal Energy Regulatory Commission.",

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N2 - In this paper we report the findings of an economic experiment that examines the effects of an automated mitigation procedure (AMP) on prices and capacity investment choices of suppliers in a wholesale electricity market. Specifically, we examine the effects of different market power incentives on markets with and without an AMP. While we find that the AMP does not affect overall investment in capacity, the most significant determinant of long-run prices is investment in new capacity. The AMP also does not reduce long-run prices relative to markets without an AMP. Furthermore, our participants successfully manipulated the AMP's trigger price.

AB - In this paper we report the findings of an economic experiment that examines the effects of an automated mitigation procedure (AMP) on prices and capacity investment choices of suppliers in a wholesale electricity market. Specifically, we examine the effects of different market power incentives on markets with and without an AMP. While we find that the AMP does not affect overall investment in capacity, the most significant determinant of long-run prices is investment in new capacity. The AMP also does not reduce long-run prices relative to markets without an AMP. Furthermore, our participants successfully manipulated the AMP's trigger price.

KW - Automated mitigation procedures

KW - Electric power markets

KW - Investment

KW - Price caps

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An experimental analysis of the effects of automated mitigation procedures on investment and prices in wholesale electricity markets

Abstract

Keywords

ASJC Scopus subject areas

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