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Supply Function Competition in the Spanish Wholesale Electricity Market

  • Aitor Ciarreta
  • Maria Paz Espinosa

We represent the Spanish wholesale market as a supply function com­petition model. Theoretically, the larger generators’ supply curves for each plant should be to the left of the supply curves of plants owned by smaller generators. We test this prediction for fuel plants using data from the Spanish Market Op­erator (OMEL) from January 2002 to December 2005. Our empirical results are consistent with the model predictions and suggest that the supply function model better fits data than a discrete-bid auction model since large generators behave as price-makers irrespective whether they are the marginal firms at the auction.

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Article provided by International Association for Energy Economics in its journal The Energy Journal.

Volume (Year): Volume 31 (2010)
Issue (Month): Number 4 ()
Pages: 137-158

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Handle: RePEc:aen:journl:2010v31-04-a06
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  1. Professor Paul Klemperer, 2000. "What Really Matters in Auction Design," Microeconomics 0004008, EconWPA.
  2. David Harbord & Natalia Fabra & Nils-Henrik von der Fehr, 2002. "Modeling Electricity Auctions," Game Theory and Information 0206001, EconWPA.
  3. Laussel, D., 1990. "Strategic Commercial Policy Revisited: A Supply Function Equilibrium Model," G.R.E.Q.A.M. 90a05, Universite Aix-Marseille III.
  4. Stephen Spear, . "The Electricity Market Game," GSIA Working Papers 2003-E17, Carnegie Mellon University, Tepper School of Business.
  5. Green, Richard, 2001. "Failing Electricity Markets: Should we Shoot the Pools?," CEPR Discussion Papers 3010, C.E.P.R. Discussion Papers.
  6. Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-53, October.
  7. Bolle, Friedel, 1992. "Supply function equilibria and the danger of tacit collusion : The case of spot markets for electricity," Energy Economics, Elsevier, vol. 14(2), pages 94-102, April.
  8. Green, Richard, 1999. "The Electricity Contract Market in England and Wales," Journal of Industrial Economics, Wiley Blackwell, vol. 47(1), pages 107-24, March.
  9. Ferreira, E. & Stute, W., 2004. "Testing for Differences Between Conditional Means in a Time Series Context," Journal of the American Statistical Association, American Statistical Association, vol. 99, pages 169-174, January.
  10. Green, Richard J, 1996. "Increasing Competition in the British Electricity Spot Market," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 205-16, June.
  11. Severin Borenstein & James B. Bushnell & Frank A. Wolak, 2002. "Measuring Market Inefficiencies in California's Restructured Wholesale Electricity Market," American Economic Review, American Economic Association, vol. 92(5), pages 1376-1405, December.
  12. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November.
  13. Newbery, David M., 2002. "Problems of liberalising the electricity industry," European Economic Review, Elsevier, vol. 46(4-5), pages 919-927, May.
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