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Strategic Behavior and Collusion: An Application to the Spanish Electricity Market

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  • Ciarreta Antuñano, Aitor
  • Gutiérrez Hita, Carlos

Abstract

The paper has two major contributions to the theory of repeated games. First, we build a supergame oligopoly model where firms compete in supply functions, we show how collusion sustainability is affected by the presence of a convex cost function, the magnitude of both the slope of demand market, and the number of rivals. Then, we compare the results with those of the traditional Cournot reversion under the same structural characteristics. We find how depending on the number of firms and the slope of the linear demand, collusion sustainability is easier under supply function than under Cournot competition. The conclusions of the models are simulated with data from the Spanish wholesale electricity market to predict lower bounds of the discount factors.

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Bibliographic Info

Paper provided by University of the Basque Country - Department of Foundations of Economic Analysis II in its series DFAEII Working Papers with number 2005-02.

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Date of creation: Oct 2004
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Handle: RePEc:ehu:dfaeii:200502

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Postal: Dpto. de Fundamentos del Análisis Económico II, = Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain
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Keywords: collusion; repeated games; electricity market;

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References

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  1. Natalia Fabra, 2003. "Tacit Collusion in Repeated Auctions: Uniform Versus Discriminatory," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 51(3), pages 271-293, 09.
  2. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, Econometric Society, vol. 57(6), pages 1243-77, November.
  3. Frank A. Wolak, 2003. "Measuring Unilateral Market Power in Wholesale Electricity Markets: The California Market, 1998–2000," American Economic Review, American Economic Association, American Economic Association, vol. 93(2), pages 425-430, May.
  4. Green, Richard J, 1996. "Increasing Competition in the British Electricity Spot Market," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 44(2), pages 205-16, June.
  5. Green, Richard, 2001. "Failing Electricity Markets: Should we Shoot the Pools?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3010, C.E.P.R. Discussion Papers.
  6. Green, Richard, 1999. "The Electricity Contract Market in England and Wales," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 47(1), pages 107-24, March.
  7. Severin Borenstein & James Bushnell, 1998. "An Empirical Analysis of the Potential for Market Power in California's Electricity Industry," NBER Working Papers 6463, National Bureau of Economic Research, Inc.
  8. Bolle, Friedel, 1992. "Supply function equilibria and the danger of tacit collusion : The case of spot markets for electricity," Energy Economics, Elsevier, Elsevier, vol. 14(2), pages 94-102, April.
  9. repec:ebl:ecbull:v:12:y:2004:i:3:p:1-6 is not listed on IDEAS
  10. Powell, Andrew, 1993. "Trading Forward in an Imperfect Market: The Case of Electricity in Britain," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 103(417), pages 444-53, March.
  11. Borenstein, Severin & Bushnell, James & Kahn, Edward & Stoft, Steven, 1995. "Market power in California electricity markets," Utilities Policy, Elsevier, Elsevier, vol. 5(3-4), pages 219-236.
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Cited by:
  1. Eva Jansson, 0. "Deregulation, property rights, and legal system," European Journal of Law and Economics, Springer, Springer, vol. 0, pages 1-25.

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