Abstract for: Capacity Utilization in Electricity Market Behavior: An Experimental Analysis
This paper describes a laboratory experiment to study the effect of variable capacity utilization over the behavior of an electricity market. Capacity utilization is an important factor in order to explain the multiple cycle periods observed in many industries. Investors make investment and capacity utilization decisions in an expanded Cobweb market of the power generation sector. The experiment has four year investment lag, power generation capacity with a sixteen year lifetime and it does not assume full capacity utilization. Cyclical behavior results in three out six markets. Tests show that one market presents well-defined and pronounced cyclical behavior, while other two markets present minor oscillations. Results suggest that varying capacity utilization favors stability, rather than a cyclical behavior.