Electricity markets: Designing auctions where suppliers have uncertain costs.∗

We analyze how market design influences the bidding behavior in multiunit procurement auctions where suppliers have uncertain costs and are uncertain about the availability of production units, as in wholesale electricity markets. We find that the competitiveness of market outcomes improves with increased market transparency. We identify circumstances where the auctioneer prefers uniform to discriminatory pricing, and vice versa. We also identify circumstances where it should be market effi ciency enhancing to restrict the number of steps in the bid-schedules.