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Strategic Reneging in Sequential Imperfect Markets

Author

Listed:
  • David BENATIA

    (CREST (UMR 9194), ENSAE, Institut Polytechnique de Paris.)

  • Etienne BILLETTE de VILLEMEUR

    (LEM-CNRS (UMR 9221), Université de Lille.)

Abstract

This paper investigates the incentives to manipulate sequential markets by strategically reneging on forward commitments. We first study the behavior of a monopolist in a two-period model with demand uncertainty. Our results deliver guidance for identifying manipulations and evaluating its market impacts. We then test the model's predictions using occurrences of reneging on long-term commitments in Alberta's electricity market. We implement a machine learning approach to identify and evaluate manipulations. We find that a dominant supplier increased its revenues by $35 million during the winter of 2010-11, causing Alberta's electricity procurement costs to increase by above $330 million (20%).

Suggested Citation

  • David BENATIA & Etienne BILLETTE de VILLEMEUR, 2019. "Strategic Reneging in Sequential Imperfect Markets," Working Papers 2019-19, Center for Research in Economics and Statistics.
  • Handle: RePEc:crs:wpaper:2019-19
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    Cited by:

    1. Cerqua, Augusto & Letta, Marco, 2021. "Local inequalities of the COVID-19 crisis," GLO Discussion Paper Series 875, Global Labor Organization (GLO).
    2. David BENATIA, 2020. "Reaching New Lows? The Pandemic's Consequences for Electricity Markets," Working Papers 2020-12, Center for Research in Economics and Statistics.
    3. Cerqua, Augusto & Letta, Marco, 2020. "Local economies amidst the COVID-19 crisis in Italy: a tale of diverging trajectories," MPRA Paper 104404, University Library of Munich, Germany.
    4. Augusto Cerqua & Roberta Di Stefano & Marco Letta & Sara Miccoli, 2020. "Local mortality estimates during the COVID-19 pandemic in Italy," Discussion Paper series in Regional Science & Economic Geography 2020-06, Gran Sasso Science Institute, Social Sciences, revised Oct 2020.

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    More about this item

    Keywords

    Imperfect Commitment; Market Manipulation; Market Power; Electricity Markets.;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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