Gas and Coal Economics, page-23

The WESM dispatches power on the merit order created by the sellers' offers. In a theoretical perfect competitive market the dispatch price is still not the marginal cost of the last unit dispatched, but a fraction below the marginal cost of last unit not dispatched. In reality if everyone has perfect or close to perfect information (and the traders do end up knowing the offers of other participants) I offer my generation in at a level where my generation should not get displaced. I might also offer my power in, far below marginal cost and even at a negative price if I must get dispatched for contractual or operational reasons. If the network is capacity constrained I will offer my electricity in a close to the cap, knowing all generators will be dispatched. Depending on the number of participants (but at 4-5 players) it is possible to train other traders by rewarding them or punishing them with the price you offer - so that the pricing can sit at a level where no one has an incentive to deviate, and all can earn a price above marginal cost (the coal and contracts in the philipines seem to make this strategy unstable). Where you have a portfolio of generators with a range of marginal costs, you can throw a stack of volatility into the market and pick up a higher price on the pricing of the risk management contracts.