Capacity Competition in Electricity Markets

We analyze a two-stage game where capacity-constrained electricity generators …rst choose how much capacity they make available and then compete in a uniform-price auction. We study how capacity withhold- ing can be used strategically to enforce market power and how uniform auctions in the price game change the results of capacity constrained competition models. The uniform auction procedure gives strong in- centives to capacity restriction. At equilibrium, however, power short- age never occurs.