Chasing Stars: Firms’ pricing & production strategy under energy efficiency labeling program

Jaseep Mandia

I study how firms strategically decide the price-quantity schedule in the quality-differentiated spectrum of the goods market. I concentrate my study on the air conditioners market in India and observe that in response to the 5-star energy efficiency labeling program (5 being the most efficient), firms produce fewer quantities of 4-star labelled and 1-star labelled AC. I present two theory models and find out conditions under which firms are better-off reducing the production of 4-star AC. I also calculate the change in consumer surplus for each type of consumer, if 4-star AC is dropped from the market by the firm.

Determinants of Misoptimization in Residential Electricity Markets

Eunki Min

Despite the principle that agents optimize at the margin, there has been a puzzle in electricity markets that consumers respond to their perceived price instead of the marginal price. Examples of these misperceptions include using irrelevant prices such as expected marginal price or average price, and confusing current marginal price with average price. Furthermore, a delay in internalizing price changes may exist possibly due to consumers’ characteristics. Understanding the factors that lead to (the lack of) responsiveness would provide insights on the mechanism of and the treatment to these suboptimal behaviors. Using nation-wide address level residential electricity bill data, I investigate if factors, such as monthly electricity usage, are related to consumers’ responsiveness.

Pay-For-Performance or Pure Compensation: Efficient Capacity Market Design in US Electricity Market

Chenyu Qiu

In US deregulated electricity market, capacity market payment is designed as additional compensation for keeping sufficient generation resources needed in energy market during tight demand. However, such compensation disconnects from energy market, providing no incentives for compensated generators to operate in times of greatest need. This project investigates a recent change from this pure compensation to “pay-for-performance” design, which introduces extreme penalties if compensated generators under-perform than expected in energy market. I show that this policy change improves capacity payment allocation by decreasing over-commitment. Using generator-level panel data, I also find substantial policy effect on generators’ offers in energy market.