Dynamic and Strategic Behavior in Hydropower-Dominated Electricity Markets: Empirical Evidence for Colombia
In this paper we formulate a dynamic multi-unit auction model to characterize bidding behavior in hydro power dominated electricity markets. Our model implies that, in order to maximize expected profits, hydro producers will submit bid prices above its marginal production costs that account for the intertemporal opportunity cost of water and the expected strategic effects of bids on rivals’ behavior. We test the predictions of our model against data of the Colombian electricity market, where hydro producers hold 63% of total installed capacity, and find evidence consistent with both dynamic and strategic behavior.
The opinions expressed here do not necessarily correspond neither to the Banco de la República nor its Board of Directors.
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This document has been translated into English for informational purposes. Upon any query regarding its interpretation or enforceability, the Spanish version shall be deemed official, and will prevail over the English version.
Este documento ha sido traducido al inglés para fines informativos. En caso de cualquier duda sobre su interpretación y aplicación, se entenderá que la versión en español es la versión oficial y prevalecerá sobre aquella escrita en inglés.
