Strategic Bidding in a Multiunit Auction: An Empirical Analysis of Bids to Supply Electricity in England and Wales

Abstract

I consider bidding behavior in the daily electricity auction in England and Wales. Theoretical work on uniform-price multiunit procurement auctions suggests that bidders offering more than one unit have an incentive to increase their bids at high quantities. If a bid sets a high equilibrium price, it applies to all inframarginal units. I find evidence of strategic bid increases in the electricity auctions. First, plants that are likely to be used after other plants are already operating bid more. Second, the larger supplier submits higher bids for similar plants. Last, bids for a given plant are slightly higher on days when more of the capacity that is typically inframarginal to that plant is available.