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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

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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.

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  • 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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