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Heterogeneous Impacts of Cost Shocks, Strategic Bidding and Pass-Through: Evidence From the New England Electricity Market

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  • Harim Kim

Abstract

Industry-wide shocks can have heterogeneous impacts on firms’ costs due to different firm characteristics. The heterogeneity in these impacts is crucial for understanding the passthrough of the shock, because of its implications on strategic competition. In the context of the gas price shock in the electricity market, I develop a method to identify heterogeneous impacts of the shock and show with a structural analysis that the heterogeneous feature of the shock induces markup adjustments of firms. Pass-through that is estimated without incorporating heterogeneous impacts fails to reflect the change in competition arising from the shock, and is, on average, underestimated.

Suggested Citation

  • Harim Kim, 2018. "Heterogeneous Impacts of Cost Shocks, Strategic Bidding and Pass-Through: Evidence From the New England Electricity Market," CRC TR 224 Discussion Paper Series crctr224_2018_053, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2018_053
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp053
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    Cited by:

    1. Levi Marks & Charles F. Mason & Kristina Mohlin & Matthew Zaragoza-Watkins, 2017. "Vertical Market Power in Interconnected Natural Gas and Electricity Markets," CESifo Working Paper Series 6687, CESifo.

    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources

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