Pass-through of wholesale price to the end user retail price in the Norwegian electricity market
In this paper we estimate the pass-through of wholesale electricity price to the end consumer price with variable price contracts in the Norwegian electricity market using weekly data. We find substantial asymmetry when retailers pass on the impact of price changes in the wholesale market to the retail prices as price increases are transmitted more quickly than price decreases. By examining the cumulative adjustment function of price change, we identify that some dominant retailers might be exercising market power in the retail electricity market. For an average Norwegian household with variable price contract, the cost of asymmetric price pass-through due to 2.5Øre/kWh change in the wholesale price over the complete life of pass-through in a year reaches to a high of 2.28 NOK. This cost sums up to 3.8 million NOK for all the Norwegian households on variable price contracts for one time price change. To deal with this asymmetric price setting behavior, end consumers should switch to spot price contracts and make use of “smart grid” technologies.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Borenstein, Severin & Bushnell, James & Knittel, Chris, 1999.
"Market Power in Electricity Markets: Beyond Concentration Measures,"
Staff General Research Papers Archive
31548, Iowa State University, Department of Economics.
- Severin Borenstein & James Bushnell & Christopher R. Knittel, 1999. "Market Power in Electricity Markets: Beyond Concentration Measures," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 65-88.
- Severin Borenstein & A. Colin Cameron, 1992.
"Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?,"
NBER Working Papers
4138, National Bureau of Economic Research, Inc.
- Severin Borenstein & A. Colin Cameron & Richard Gilbert, 1997. "Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 305-339.
- Balke, Nathan S & Fomby, Thomas B, 1997.
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 627-45, August.
- Balke, Nathan S. & Fomby, Thomas B., 1992. "Threshold cointegration," Working Papers 9209, Federal Reserve Bank of Dallas.
- Tom Doan, . "RATS programs to replicate Balke-Fomby threshold cointegration," Statistical Software Components RTZ00010, Boston College Department of Economics.
- Bettendorf, Leon & van der Geest, Stephanie A. & Varkevisser, Marco, 2003. "Price asymmetry in the Dutch retail gasoline market," Energy Economics, Elsevier, vol. 25(6), pages 669-689, November.
- Ginsburgh, Victor & Michel, Philippe, 1988.
"Adjustment Costs, Concentration and Price Behaviour,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 36(4), pages 477-81, June.
- Victor Ginsburgh & Philippe Michel, 1988. "Adjustment costs, concentration and price behaviour," ULB Institutional Repository 2013/1739, ULB -- Universite Libre de Bruxelles.
- GINSBURGH, Victor & MICHEL, Philippe, . "Adjustment costs, concentration and price behaviour," CORE Discussion Papers RP 849, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Sam Peltzman, 1998.
"Prices Rise Faster Than They Fall,"
University of Chicago - George G. Stigler Center for Study of Economy and State
142, Chicago - Center for Study of Economy and State.
- Qin, D. & Lu, M., 1996.
"Dynamic structure of disequilibrium models,"
Discussion Paper Series In Economics And Econometrics
9631, Economics Division, School of Social Sciences, University of Southampton.
- Chen, Li-Hsueh & Finney, Miles & Lai, Kon S., 2005. "A threshold cointegration analysis of asymmetric price transmission from crude oil to gasoline prices," Economics Letters, Elsevier, vol. 89(2), pages 233-239, November.
- Olsen, Ole Jess & Johnsen, Tor Arnt & Lewis, Philip, 2006. "A Mixed Nordic Experience: Implementing Competitive Retail Electricity Markets for Household Customers," The Electricity Journal, Elsevier, vol. 19(9), pages 37-44, November.
- Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107, December.
- Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
- Nils-Henrik M. Von Der Fehr & Petter Vegard Hansen, 2009.
"Electricity Retailing in Norway,"
EUI-RSCAS Working Papers
4, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
- von der Fehr, Nils-Henrik M. & Hansen, Petter Vegard, 2008. "Electricity Retailing in Norway," Memorandum 02/2009, Oslo University, Department of Economics.
- Nils-Henrik M. Von Der Fehr & Petter Vegard Hansen, 2009. "Electricity Retailing in Norway," RSCAS Working Papers 2009/04, European University Institute.
- Jean Tirole & Paul Joskow, 2006.
"Retail Electricity Competition,"
- Paul L. Joskow & Jean Tirole, 2004. "Retail Electricity Competition," NBER Working Papers 10473, National Bureau of Economic Research, Inc.
- Joskow, P. & Tirole, J., 2004. "‘Retail Electricity Competition’," Cambridge Working Papers in Economics 0430, Faculty of Economics, University of Cambridge.
- Paul Joskow & Jean Tirole, 2004. "Retail Electricity Competition," Working Papers 0409, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- Joskow, Paul & Tirole, Jean, 2004. "Retail Electricity Competition," IDEI Working Papers 311, Institut d'Économie Industrielle (IDEI), Toulouse.
- Matteo Manera & Margherita Grasso, 2005.
"Asymmetric Error Correction Models for the Oil-Gasoline Price Relationship,"
2005.75, Fondazione Eni Enrico Mattei.
- Grasso, Margherita & Manera, Matteo, 2007. "Asymmetric error correction models for the oil-gasoline price relationship," Energy Policy, Elsevier, vol. 35(1), pages 156-177, January.
- Michael C. Davis & James D. Hamilton, 2003.
"Why Are Prices Sticky? The Dynamics of Wholesale Gasoline Prices,"
NBER Working Papers
9741, National Bureau of Economic Research, Inc.
- Davis, Michael C & Hamilton, James D, 2004. "Why Are Prices Sticky? The Dynamics of Wholesale Gasoline Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 17-37, February.
- J. Madsen & B. Yang, 1997.
"Asymmetric price adjustment in a men-cost model,"
Economics Discussion / Working Papers
97-06, The University of Western Australia, Department of Economics.
- Matteo Manera & Giliola Frey, 2005.
"Econometric Models of Asymmetric Price Transmission,"
2005.100, Fondazione Eni Enrico Mattei.
- Giliola Frey & Matteo Manera, 2007. "Econometric Models Of Asymmetric Price Transmission," Journal of Economic Surveys, Wiley Blackwell, vol. 21(2), pages 349-415, 04.
- Littlechild, Stephen, 2006.
"Competition and contracts in the Nordic residential electricity markets,"
Elsevier, vol. 14(3), pages 135-147, September.
- Littlechild, S., 2005. "Competition and contracts in the Nordic Residential Electricity Markets," Cambridge Working Papers in Economics 0550, Faculty of Economics, University of Cambridge.
- Monica Giulietti & Michael Waterson & Matthijs Wildenbeest, 2014.
"Estimation of Search Frictions in the British Electricity Market,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 62(4), pages 555-590, December.
- Giulietti, Monica & Waterson, Michael & Wildenbeest, Matthijs R., 2010. "Estimation of Search Frictions in the British Electricity Market," The Warwick Economics Research Paper Series (TWERPS) 940, University of Warwick, Department of Economics.
- Enders, Walter & Siklos, Pierre L, 2001.
"Cointegration and Threshold Adjustment,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 19(2), pages 166-76, April.
- Tom Doan, . "ENDERSIKLOS: RATS procedure to perform Enders-Siklos test for cointegration with threshold effect," Statistical Software Components RTS00064, Boston College Department of Economics.
- Tom Doan, . "RATS programs to replicate Enders-Siklos(2001) JBES paper on threshold cointegration," Statistical Software Components RTZ00053, Boston College Department of Economics.
- Ronald Johnson, 2002. "Search Costs, Lags and Prices at the Pump," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 20(1), pages 33-50, February.
- Littlechild, Stephen C, 2003. "Wholesale Spot Price Pass-Through," Journal of Regulatory Economics, Springer, vol. 23(1), pages 61-91, January.
- Catherine D. Wolfram, 1999. "Measuring Duopoly Power in the British Electricity Spot Market," American Economic Review, American Economic Association, vol. 89(4), pages 805-826, September.
- Bacon, Robert W., 1991. "Rockets and feathers: the asymmetric speed of adjustment of UK retail gasoline prices to cost changes," Energy Economics, Elsevier, vol. 13(3), pages 211-218, July.
When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:34:y:2012:i:6:p:2003-2012. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.