Due to spiking electricity prices several stakeholders are arguing that the electricity market is malfunctioning and the pricing mechanism is flawed. The merit order model, that attributes the marginal (highest production price) to all producers is nothing else than the offer/demand model that we apply in all other markets as well.
Lion Hirth is Professor of Energy Policy at the Hertie School. His research interests lie in the economics of wind and solar power, energy policy instruments and electricity market design.
The document introduce marginal pricing - in the context of energy, and make three statements about it:
Marginal pricing is not unique to power markets.
Marginal pricing is not an artificial rule.
If you want to get rid of marginal pricing, you must force people to change their behavior
Three points are very much aligned with what is generally understood as mainstream economics. Those points are quite general and do apply to most supply chains as well.