Electricity prices and cross-border trade: volume and strategy effects
AbstractIn this paper we derive equilibrium bid functions in isolated domestic electricity markets and then analyse their modifications when cross-border trade among them is managed using the implicit auction method. We show that cross-border trade can induce price convergence across countries and thereby reallocate gains and losses as a result of two concomitant effects: a “volume” effect due to the mere increase/decrease of demand and supply in each market and a “bid effect” due to the modifications of bid functions brought about by interconnection. The latter effect can either contrast or reinforce the former. We derive conditions affecting the net result.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 473.
Date of creation: 16 Oct 2006
Date of revision:
Electricity markets; implicit auctions; cross-border trade;
Other versions of this item:
- Parisio, Lucia & Bosco, Bruno, 2008. "Electricity prices and cross-border trade: Volume and strategy effects," Energy Economics, Elsevier, vol. 30(4), pages 1760-1775, July.
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-12-04 (All new papers)
- NEP-ENE-2006-12-04 (Energy Economics)
- NEP-MIC-2006-12-04 (Microeconomics)
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