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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. 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.
  2. Laussel, D., 1990. "Strategic Commercial Policy Revisited: A Supply Function Equilibrium Model," G.R.E.Q.A.M. 90a05, Universite Aix-Marseille III.
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  5. Professor Paul Klemperer, 2000. "What Really Matters in Auction Design," Microeconomics 0004008, EconWPA.
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  7. 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.
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  9. 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.
  10. Green, Richard, 1999. "The Electricity Contract Market in England and Wales," Journal of Industrial Economics, Wiley Blackwell, vol. 47(1), pages 107-24, March.
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