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Price Wars and Collusion in the Spanish Electricity Market

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Author Info
Natalia Fabra (IDEI, Universitè de Toulouse)
Juan Toro (Centro de Estudios Andaluces)

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Abstract

We analyze the pattern of pool prices in the Spanish electricity market during 1998 by means of a Time Varying Transition Probabilities Markov switching model. Our purpose is two­fold: firstly, to identify and date the drops in prices that cannot be accounted for by supply nor demand conditions; and secondly, under the assumption that these correspond with reversions to non­cooperative behaviour, to identify the trigger variables upon which a collusive equilibrium could be based upon. Our results confirm the hypothesis that two distinct price levels characterize the time series of pool prices, and point to the conclusion that price wars are induced by changes in the major generators' market shares. In turn, this shows that firms' pricing behaviour is highly influenced by the way in which the so­called Competition Transition Charges (CTCs) are computed.

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Publisher Info
Paper provided by Centro de Estudios Andaluces in its series Economic Working Papers at Centro de Estudios Andaluces with number E2001/05.

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Length: 35 pages
Date of creation: 2001
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Handle: RePEc:cea:doctra:e2001_05

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Related research
Keywords: Electricity Markets Tacit Collusion Markov Switching

Other versions of this item:

Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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  1. Christian Schultz, 2005. "Virtual Capacity and Competition," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  2. James B. Bushnell & Erin T. Mansur & Celeste Saravia, 2007. "Vertical Arrangements, Market Structure, and Competition An Analysis of Restructured U.S. Electricity Markets," NBER Working Papers 13507, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Haldrup; Niels & Morten Oerregaard Nielsen, 2005. "Directional Congestion and Regime Switching in a Long Memory Model for Electricity Prices," Economics Working Papers 2005-18, School of Economics and Management, University of Aarhus. [Downloadable!]
    Other versions:
  4. Bruno Bosco & Lucia Parisio & Matteo Pelagatti & Fabio Baldi, 2007. "A robust multivariate long run analysis of European electricity prices," Working Papers 20070901, Università degli Studi di Milano-Bicocca, Dipartimento di Statistica. [Downloadable!]
    Other versions:
  5. Ciro Eduardo Bazán Navarro, 2004. "Análisis de la competencia en un mercado mayorista de electricidad: el caso de España," Documentos de trabajo conjunto ULL-ULPGC 2004-04, Facultad de Ciencias Económicas de la ULPGC. [Downloadable!]
  6. Mª Dolores Furió Ortega & Julio Lucia López, . "Congestion management rules and trading strategies," Studies on the Spanish Economy 222, FEDEA. [Downloadable!]
  7. Christian Schultz, 2004. "Virtual Capacity and Tacit Collusion," CIE Discussion Papers 2004-03, University of Copenhagen. Department of Economics. Centre for Industrial Economics. [Downloadable!]
  8. Bruno Bosco & Lucia Parisio & Matteo Pelagatti & Fabio Baldi, 2006. "Deregulated Wholesale Electricity Prices in Europe," Working Papers 20061001, Università degli Studi di Milano-Bicocca, Dipartimento di Statistica. [Downloadable!]
  9. Erin T. Mansur, 2007. "Measuring Welfare in Restructured Electricity Markets," NBER Working Papers 13509, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Bruno Bosco & Lucia Parisio & Matteo Pelagatti, 2006. "Deregulated Wholesale Electricity Prices in Italy," Working Papers 20060301, Università degli Studi di Milano-Bicocca, Dipartimento di Statistica, revised Apr 2006. [Downloadable!]
  11. Crampes , C. & Fabra , N., 2005. "The Spanish Electricity Industry: Plus ça change …," Cambridge Working Papers in Economics 0502, Faculty of Economics, University of Cambridge. [Downloadable!]
  12. CRAMPES, Claude & FABRA, Natalia, 2004. "The Spanish Electricity Industry: Plus ça change..," IDEI Working Papers 317, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  13. Álvaro Escribano & Juan Ignacio Peña & Pablo Villaplana, 2002. "Modeling Electricity Prices: International Evidence," Economics Working Papers we022708, Universidad Carlos III, Departamento de Economía. [Downloadable!]
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