Economics Seminar: Eray Cumbul (TOBB University)

Sabancı University
Faculty of Arts and Social Sciences

ECONOMICS SEMINAR

Information Acquisition and Sharing with Supply Functions: An Application to Electricity Markets (with Xavier Vives)

Eray Cumbul

(TOBB University)

Friday, April 8, 2016

13:45  FASS 2034

There has been an extensive debate about the enforcement of regulations to enhance wholesale electricity market integrity and transparency in the EU and the US. In this paper, we study i) How such regulations affect market competitiveness, ii) The incentives of firms to acquire or share cost information. We consider two (potentially) asymmetrically and privately informed firms facing linear stochastic costs and engaging in supply function competition. We show that expected- consumer surplus and total welfare increase with both information sharing and acquisition due to the increase in the overall competition level. Moreover, as a firm gets more informed in the no-sharing game, both his expected production and expected price decrease. However, better information may also increase expected profit by raising production volatility. A firm has an incentive to acquire (observable) information if i) the rival firm is sufficiently informed ii) both the correlation between firms' cost parameters  (ρ) and the demand intercept are sufficiently low. In this model, full-sharing equilibrium does not exist. Nevertheless, a firm has an incentive to unilaterally share his information for free if ρ is sufficiently low or high for a large set of parameter values. We study the robustness of our results in an n-firm set-up with symmetrically and privately informed firms facing convex and quadratic costs (Vives, 2011). We show that if ρ>0 (ρ<0 resp.), then firms have incentives to fully share their information voluntarily if and only if the convexity of costs is sufficiently low (high resp.). 

P.S: The seminar will be held in English.