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Price Wars and Collusion in the Spanish Electricity Market

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Author Info
Natalia Fabra (Universidad Carlos III de Madrid)
Juan Toro (Oxford University)

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Abstract

\We analyze the time-series of prices in the Spanish electricity market by means of a time varying-transition-probability Markov switching model. Accounting for changes in demand and cost conditions (which reflect changes in input costs, capacity availability and hydro power), we show that the time-series of prices is characterized by two significantly different price levels. Based on a Green and Porter (1984)'s type of model that introduces several institutional details, we construct trigger variables that affect the likelihood of starting a price war. By interpreting the signs of the triggers, we are able to infer some of the properties of the collusive strategy that firms might have followed. We obtain more empirical support to Green and Porter's model than previous studies. REVISED: January 2004

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File URL: http://129.3.20.41/eps/io/papers/0212/0212001.pdf
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Paper provided by EconWPA in its series Industrial Organization with number 0212001.

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Length: 27 pages
Date of creation: 09 Dec 2002
Date of revision: 31 Aug 2003
Handle: RePEc:wpa:wuwpio:0212001

Note: Type of Document - Tex; prepared on IBM PC -; to print on PostScript; pages: 27
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Web page: http://129.3.20.41

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Related research
Keywords: Electricity Markets; Collusion; Markov Switching;

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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
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 Group Munich. [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)
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  3. Erin T. Mansur, 2007. "Measuring Welfare in Restructured Electricity Markets," NBER Working Papers 13509, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. 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!]
  5. Crampes, Claude & Fabra, Natalia, 2004. "The Spanish Electricity Industry: Plus ça change..," IDEI Working Papers 317, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  6. Vitor Marques & Isabel Soares & Adelino Fortunato, 2008. "Measuring market power in the Iberian electricity wholesale market through the residual demand curve," CETE Discussion Papers 0801, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
  7. Baldursson , Fridrik M. & von der Fehr, Nils-Henrik, 2007. "Vertical Integration and Long-Term Contracts in Risky Markets," Memorandum 01/2007, Oslo University, Department of Economics. [Downloadable!]
  8. Mª Dolores Furió Ortega & Julio Lucia López, . "Congestion management rules and trading strategies," Studies on the Spanish Economy 222, FEDEA. [Downloadable!]
  9. Bruno Bosco & Lucia Parisio & Matteo Pelagatti, 2007. "Deregulated Wholesale Electricity Prices in Italy: An Empirical Analysis," International Advances in Economic Research, Springer, vol. 13(4), pages 415-432, November. [Downloadable!] (restricted)
  10. 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!]
  11. Niels Haldrup & Frank S. Nielsen & Morten Ørregaard Nielsen, 2007. "A Vector Autoregressive Model for Electricity Prices Subject to Long Memory and Regime Switching," CREATES Research Papers 2007-29, School of Economics and Management, University of Aarhus. [Downloadable!]
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  12. de Frutos, Maria-Angeles & Fabra, Natalia, 2008. "On the Impact of Forward Contract Obligations in Multi-Unit Auctions," CEPR Discussion Papers 6756, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  13. 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:
  14. Christian Schultz, 2004. "Virtual Capacity and Tacit Collusion," CIE Discussion Papers 2004-03, University of Copenhagen. Department of Economics. Centre for Industrial Economics. [Downloadable!]
  15. James Bushnell, 2007. "Oligopoly equilibria in electricity contract markets," Journal of Regulatory Economics, Springer, vol. 32(3), pages 225-245, December. [Downloadable!] (restricted)
  16. Vítor Marques & Isabel Soares & Adelino Fortunato, 2008. "Uniform Price Market and Behaviour Pattern: What Does the Iberian Electricity Market Point Out?," GEMF Working Papers 2008-08, GEMF - Faculdade de Economia, Universidade de Coimbra. [Downloadable!]
  17. 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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