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Market Power and Heterogeneous Pass-through in German Electricity Retail

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  • Tomaso Duso
  • Florian Szücs

Abstract

We analyze the pass-through of cost changes to retail tariffs in the German electricity market over the 2007 to 2014 period. We find an average pass-through rate of around 60%, which significantly varies with demand factors: while the pass-through rate to baseline tariffs, where firms have higher market power, is only 50%, it increases to 70% in the competitive segment of the market. Although the pass-through rate of independent firms is significantly higher than that of other firms in the competitive market segment, the extent of supply-side heterogeneity is limited. Thus, the firms’ ability to exercise market power appears to be constrained by competition and largely determined by demand side factors. Finally, we find that the pass-through rate in the competitive market segment has been approaching unity over the past years, indicating a rise in competitive pressure.

Suggested Citation

  • Tomaso Duso & Florian Szücs, 2016. "Market Power and Heterogeneous Pass-through in German Electricity Retail," Discussion Papers of DIW Berlin 1614, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1614
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    Cited by:

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    2. Ellalee, Haider & Alali, Walid Y., 2022. "A Welfare and Pass-Through Effects of Regulations within Imperfect Competition," MPRA Paper 116512, University Library of Munich, Germany.
    3. Duso, Tomaso & Szücs, Florian & Böckers, Veit, 2020. "Abuse of dominance and antitrust enforcement in the German electricity market," Energy Economics, Elsevier, vol. 92(C).
    4. Emanuel Kohlscheen & Richhild Moessner, 2022. "Changing Electricity Markets: Quantifying the Price Effects of Greening the Energy Matrix," Papers 2208.14650, arXiv.org.
    5. Takanori Adachi & Michal Fabinger, 2017. "Multi-Dimensional Pass-Through and Welfare Measures under Imperfect Competition," Papers 1702.04967, arXiv.org, revised Dec 2018.
    6. Adachi, Takanori & Fabinger, Michal, 2022. "Pass-through, welfare, and incidence under imperfect competition," Journal of Public Economics, Elsevier, vol. 211(C).
    7. Wagner, Johannes, 2018. "Distributed Generation in Unbundled Electricity Markets," EWI Working Papers 2018-1, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    8. Correa-Giraldo, Manuel & Garcia-Rendon, John J. & Perez, Alex, 2021. "Strategic behaviors and transfer of wholesale costs to retail prices in the electricity market: Evidence from Colombia," Energy Economics, Elsevier, vol. 99(C).
    9. Melo, Carolina & Moita, Rodrigo & Sunao, Stefanie, 2021. "Passing through the supply chain: Implications for market power," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    10. Sven Heim, 2021. "Asymmetric cost pass-through and consumer search: empirical evidence from online platforms," Quantitative Marketing and Economics (QME), Springer, vol. 19(2), pages 227-260, June.
    11. David Rios & Alex Perez & Jaime Carabali & Luis Meneses, 2024. "Poder de mercado y eventos climáticos adversos en un mercado de electricidad hidro-dominado," Borradores de Economia 1266, Banco de la Republica de Colombia.
    12. Janssen, Maarten & Gugler, Klaus & Heim, Sven & Liebensteiner , Mario, 2018. "Market Liberalization: Price Dispersion, Price Discrimination and Consumer Search in the German Electricity Markets," CEPR Discussion Papers 13197, C.E.P.R. Discussion Papers.
    13. Sugimoto, Kota, 2021. "Ownership versus legal unbundling of electricity transmission network: Evidence from renewable energy investment in Germany," Energy Economics, Elsevier, vol. 99(C).
    14. Dagoumas, Athanasios S. & Polemis, Michael L., 2020. "Carbon pass-through in the electricity sector: An econometric analysis," Energy Economics, Elsevier, vol. 86(C).
    15. Simeone, Christina E. & Lange, Ian & Gilbert, Ben, 2023. "Pass-through in residential retail electricity competition: Evidence from Pennsylvania," Utilities Policy, Elsevier, vol. 80(C).
    16. Takanori Adachi & Michal Fabinger, 2017. "Multi-Dimensional Pass-Through, Incidence, and the Welfare Burden of Taxation in Oligopoly," CIRJE F-Series CIRJE-F-1040, CIRJE, Faculty of Economics, University of Tokyo.
    17. Felix Montag & Alina Sagimuldina & Monika Schnitzer, 2021. "Does Tax Policy Work When Consumers Have Imperfect Price Information? Theory and Evidence," CESifo Working Paper Series 9138, CESifo.
    18. Dagoumas, Athanasios & Polemis, Michael, 2018. "Analysing Carbon Pass-Through Rate Mechanism in the Electricity Sector: Evidence from Greece," MPRA Paper 91067, University Library of Munich, Germany.
    19. Scotti, Davide & Volta, Nicola, 2018. "Price asymmetries in European airfares," Economics of Transportation, Elsevier, vol. 14(C), pages 42-52.
    20. Bigerna, Simona & Bollino, Carlo Andrea & D'Errico, Maria Chiara & Polinori, Paolo, 2022. "COVID-19 lockdown and market power in the Italian electricity market," Energy Policy, Elsevier, vol. 161(C).
    21. Yusuke Ikuta & Takashi Yanagawa, 2023. "Ownership structure of nuclear power plants for fair competition and efficiency: private low-cost access versus public ownership," International Journal of Economic Policy Studies, Springer, vol. 17(1), pages 307-330, February.
    22. Dagoumas, Athanasios S. & Koltsaklis, Nikolaos E., 2019. "Review of models for integrating renewable energy in the generation expansion planning," Applied Energy, Elsevier, vol. 242(C), pages 1573-1587.
    23. Alex Perez & Jaime Carabali & Luis Meneses, 2022. "Pass-through in Colombia s Unregulated Retail Electricity Market," International Journal of Energy Economics and Policy, Econjournals, vol. 12(4), pages 575-583, July.
    24. Teresa Messner & Thomas Zörner, 2023. "Aggregate price pressures along the supply chain: a euro area perspective," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q4/22-Q1/, pages 21-32.

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    More about this item

    Keywords

    Electricity retail; pass-through; Germany;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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