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Strategic Withholding through Production Failures

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  • Sara Fogelberg
  • Ewa Lazarczyk

Abstract

Anecdotal evidence indicates that electricity producers use production failures to disguise strategic reductions of capacity in order to influence prices, but systematic evidence is lacking. We use an instrumental variable approach and data from the Swedish electricity market to examine such behavior. In a market without strategic withholding, reported production failures should not depend directly on the market price. We show that marginal producers in part base their decision to report a failure on prices, which indicates that production failures are a result of economic incentives as well as of technical problems.

Suggested Citation

  • Sara Fogelberg & Ewa Lazarczyk, 2019. "Strategic Withholding through Production Failures," The Energy Journal, , vol. 40(5), pages 247-266, September.
    • Handle: RePEc:sae:enejou:v:40:y:2019:i:5:p:247-266
    DOI: 10.5547/01956574.40.5.sfog
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    References listed on IDEAS

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    1. Faisal Mehmood Mirza & Olvar Bergland, 2016. "Market Power in the Norwegian Electricity Market: Are the Transmission Bottlenecks Truly Exogenous?," The Energy Journal, , vol. 37(2), pages 27-44, April.
    2. David M. Newbery, 1995. "Power Markets and Market Power," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 39-66.
    3. Torro, Hipolit, 2007. "Forecasting Weekly Electricity Prices at Nord Pool," International Energy Markets Working Papers 7437, Fondazione Eni Enrico Mattei (FEEM).
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    Cited by:

    1. Hassanzadeh Moghimi, Farzad & Boomsma, Trine K. & Siddiqui, Afzal S., 2024. "Transmission planning in an imperfectly competitive power sector with environmental externalities," Energy Economics, Elsevier, vol. 134(C).

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