Strategic Forward Contracting in the Wholesale Electricity Market
AbstractThis paper analyses a wholesale electricity market with supply function competition. Trade in the forward and spot markets is represented by a two-stage game, and its subgame perfect Nash equilibrium (SPNE) is characterized. It is verified that increased forward sales of a producer constitute a credible commitment to aggressive spot market bidding. The paper identifies market situations when this pro-competitive commitment is unilaterally profitable for the producer. It is also proven that a producer has incentives to sell in the forward market in order to reduce competitors' forward sales, which softens their spot market offers.
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Bibliographic InfoArticle provided by International Association for Energy Economics in its journal The Energy Journal.
Volume (Year): Volume 32 (2011)
Issue (Month): Number 1 ()
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- F0 - International Economics - - General
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- Holmberg, P. & Willems, Bert, 2012.
"Relaxing Competition through Speculation: Committing to a Negative Supply Slope,"
2012-039, Tilburg University, Tilburg Law and Economic Center.
- Holmberg, P. & Willems, B., 2012. "Relaxing competition through speculation: Committing to a negative supply slope," Cambridge Working Papers in Economics 1252, Faculty of Economics, University of Cambridge.
- Holmberg, P. & Willems, Bert, 2012. "Relaxing Competition through Speculation: Committing to a Negative Supply Slope," Discussion Paper 2012-088, Tilburg University, Center for Economic Research.
- Holmberg, Pär & Willems, Bert, 2012. "Relaxing Competition through Speculation: Committing to a Negative Supply Slope," Working Paper Series 937, Research Institute of Industrial Economics.
- de Frutos, María-Ángeles & Fabra, Natalia, 2012. "How to allocate forward contracts: The case of electricity markets," European Economic Review, Elsevier, vol. 56(3), pages 451-469.
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