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Strategic Reneging and Market Power in Sequential Markets

Author

Listed:
  • David Benatia

    (ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - GENES - Groupe des Écoles Nationales d'Économie et Statistique - IP Paris - Institut Polytechnique de Paris, HEC Montréal - HEC Montréal)

  • Etienne Billette de Villemeur

    (LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique)

Abstract

This article investigates the incentives for firms with market power to manipulate markets by strategically reneging on forward commitments. We first study the behavior of a dominant firm in a two‐period model with demand uncertainty. We then use the model's predictions and a machine learning approach to investigate multiple occurrences of reneging on long‐term commitments in Alberta's electricity market in 2010–2011. We find that a supplier significantly increased its revenues by strategically reneging on its capacity availability obligations, causing Alberta's annual electricity procurement costs to increase by as much as $600 million (+17%).

Suggested Citation

  • David Benatia & Etienne Billette de Villemeur, 2025. "Strategic Reneging and Market Power in Sequential Markets," Post-Print hal-05105587, HAL.
    • Handle: RePEc:hal:journl:hal-05105587
    DOI: 10.1111/1756-2171.12488
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