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Price wars and collusion in the Spanish electricity market

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  • Fabra, Natalia
  • Toro, Juan

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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  • Fabra, Natalia & Toro, Juan, 2005. "Price wars and collusion in the Spanish electricity market," International Journal of Industrial Organization, Elsevier, vol. 23(3-4), pages 155-181, April.
    • Handle: RePEc:eee:indorg:v:23:y:2005:i:3-4:p:155-181
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    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • 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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