IDEAS home Printed from https://ideas.repec.org/p/bbe/wpaper/0606.html
   My bibliography  Save this paper

Demand Elasticity and Market Power in the Spanish Electricity Market

Author

Listed:
  • Aitor Ciarreta
  • María Paz Espinosa

    (Departamento Fundamentos del Análisis Económico II, Universidad de Pais Vasco.)

Abstract

In this paper we check wether generators' bid behavior at the Spanish wholesale electricity market is consistent with the hypothesis of profit maximization on their residual demands. Using OMEL data, we find the arc-electricity of residual demand around the system marginal price. The results suggest that the larger firms are not actually profit-maximizition on their residual demands while smaller generators' behavior is consistent with profit maximization. We argue how the regulatory environment may drive these results. Finally, we repeat the analysis for the firstsession of the intra-day market where presumably firms may not have the same incentives as in the day-ahead market.

Suggested Citation

  • Aitor Ciarreta & María Paz Espinosa, 2006. "Demand Elasticity and Market Power in the Spanish Electricity Market," Working Papers 0606, Departament Empresa, Universitat Autònoma de Barcelona, revised Jun 2006.
    • Handle: RePEc:bbe:wpaper:0606
    as

    Download full text from publisher

    File URL: http://www.uab.cat/servlet/BlobServer?blobtable=Document&blobcol=urldocument&blobheader=application/pdf&blobkey=id&blobwhere=1345650548103&blobnocache=true
    File Function: Revised version, 2006
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Castro-Rodriguez, Fidel & Marín, Pedro L. & Siotis, Georges, 2009. "Capacity choices in liberalised electricity markets," Energy Policy, Elsevier, vol. 37(7), pages 2574-2581, July.
    2. Paul Klemperer, 2002. "What Really Matters in Auction Design," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 169-189, Winter.
    3. Fabra, Natalia & von der Fehr, Nils-Henrik & Harbord, David, 2002. "Modeling Electricity Auctions," The Electricity Journal, Elsevier, vol. 15(7), pages 72-81.
    4. Green, Richard J, 1996. "Increasing Competition in the British Electricity Spot Market," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 205-216, June.
    5. Jaime F. Zender & James J.D. Wang, 2002. "Auctioning divisible goods," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 19(4), pages 673-705.
    6. 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.
    7. Natalia Fabra, 2003. "Tacit Collusion in Repeated Auctions: Uniform Versus Discriminatory," Journal of Industrial Economics, Wiley Blackwell, vol. 51(3), pages 271-293, September.
    8. Catherine D. Wolfram, 1998. "Strategic Bidding in a Multiunit Auction: An Empirical Analysis of Bids to Supply Electricity in England and Wales," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 703-725, Winter.
    9. 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 929-953, October.
    10. Delgado, Miguel A., 1993. "Testing the equality of nonparametric regression curves," Statistics & Probability Letters, Elsevier, vol. 17(3), pages 199-204, 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. A. P. Lerner, 1934. "The Concept of Monopoly and the Measurement of Monopoly Power," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 1(3), pages 157-175.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Vitor Marques & Isabel Soares & Adelino Fortunato, 2008. "Measuring market power in the Iberian electricity wholesale market through the residual demand curve," CEF.UP Working Papers 0801, Universidade do Porto, Faculdade de Economia do Porto.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Aitor Ciarreta & María Espinosa, 2010. "Market power in the Spanish electricity auction," Journal of Regulatory Economics, Springer, vol. 37(1), pages 42-69, February.
    2. Crawford, Gregory S. & Crespo, Joseph & Tauchen, Helen, 2007. "Bidding asymmetries in multi-unit auctions: Implications of bid function equilibria in the British spot market for electricity," International Journal of Industrial Organization, Elsevier, vol. 25(6), pages 1233-1268, December.
    3. Xavier Vives, 2011. "Strategic Supply Function Competition With Private Information," Econometrica, Econometric Society, vol. 79(6), pages 1919-1966, November.
    4. 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.
    5. Andrew Sweeting, 2007. "Market Power In The England And Wales Wholesale Electricity Market 1995-2000," Economic Journal, Royal Economic Society, vol. 117(520), pages 654-685, April.
    6. Natalia Fabra & Nils‐Henrik Fehr & David Harbord, 2006. "Designing electricity auctions," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 23-46, March.
    7. Lízal, Lubomír M. & Tashpulatov, Sherzod N., 2014. "Do producers apply a capacity cutting strategy to increase prices? The case of the England and Wales electricity market," Energy Economics, Elsevier, vol. 43(C), pages 114-124.
    8. Pär Holmberg, 2009. "Supply function equilibria of pay-as-bid auctions," Journal of Regulatory Economics, Springer, vol. 36(2), pages 154-177, October.
    9. Juan Aparicio & Juan Ferrando & Ana Meca & Julia Sancho, 2008. "Strategic bidding in continuous electricity auctions: an application to the Spanish electricity market," Annals of Operations Research, Springer, vol. 158(1), pages 229-241, February.
    10. Heim, Sven & Götz, Georg, 2021. "Do Pay-As-Bid Auctions Favor Collusion? Evidence from Germany's market for reserve power," Energy Policy, Elsevier, vol. 155(C).
    11. Ali Hortaçsu & Steven L. Puller, 2008. "Understanding strategic bidding in multi‐unit auctions: a case study of the Texas electricity spot market," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 86-114, March.
    12. Moritz Bohland & Sebastian Schwenen, 2020. "Technology Policy and Market Structure: Evidence from the Power Sector," Discussion Papers of DIW Berlin 1856, DIW Berlin, German Institute for Economic Research.
    13. Jun Honda, 2015. "Games with the Total Bandwagon Property," Department of Economics Working Papers wuwp197, Vienna University of Economics and Business, Department of Economics.
    14. Manzano, Carolina & Vives, Xavier, 2021. "Market power and welfare in asymmetric divisible good auctions," Theoretical Economics, Econometric Society, vol. 16(3), July.
    15. van Koten, Silvester & Ortmann, Andreas, 2013. "Structural versus behavioral remedies in the deregulation of electricity markets: An experimental investigation motivated by policy concerns," European Economic Review, Elsevier, vol. 64(C), pages 256-265.
    16. Carlos Suarez, 2021. "Private management and strategic bidding behavior in electricity markets: Evidence from Colombia," IREA Working Papers 202102, University of Barcelona, Research Institute of Applied Economics, revised Jan 2021.
    17. Dzikri Firmansyah Hakam, 2018. "Market Power Modelling in Electricity Market: A Critical Review," International Journal of Energy Economics and Policy, Econjournals, vol. 8(5), pages 347-356.
    18. Paul Klemperer, 2007. "Bidding Markets," Journal of Competition Law and Economics, Oxford University Press, vol. 3(1), pages 1-47.

    More about this item

    Keywords

    Market power; electricity market; residual demand elasticity; profit maximization.;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bbe:wpaper:0606. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Departament Empresa (email available below). General contact details of provider: http://158.109.224.4/webeco/plaes/RePEc/bbe/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.