Abstract

In the presence of uncertainty, information can both enhance efficiency and facilitate the exertion of market power. We explore this trade-off in the context of the New Zealand wholesale electricity market which operates a no-commitment predispatch market aimed at aggregating information before final bids are submitted. We develop a simple model that captures the stylized features of the environment and crystalizes the impact of information on short-term (intraday) decisions by market participants. We show that the time profile of intraday prices can serve as a metric for system-wide costs and use it to decompose the impact of information into an efficiency benefit and a strategic effect. We find that most of the time the strategic effect neutralizes the efficiency benefits of information and identify those circumstances when the efficiency benefits are largest and when the strategic costs are largest.