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Strategic Withholding through Production Failures

Anecdotal evidence indicates that electricity producers use production failures to disguise strategic reductions of capacity in order to influence prices, but systematic evidence is lacking. We use a quasi-experimental set up and data from the Swedish energy market to examine such behavior. In a market without strategic withholding, the decision of reporting a failure should be independent of the market price. We show that marginal producers in fact base their decision to report a failure in part on prices, which indicates that failures are a result of economic incentives as well as of technical problems.

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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 1015.

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Length: 31 pages
Date of creation: 31 Mar 2014
Date of revision:
Handle: RePEc:hhs:iuiwop:1015
Contact details of provider: Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Phone: +46 8 665 4500
Fax: +46 8 665 4599
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  1. David M. Newbery, 1995. "Power Markets and Market Power," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 39-66.
  2. Catherine D. Wolfram, 1999. "Measuring Duopoly Power in the British Electricity Spot Market," American Economic Review, American Economic Association, vol. 89(4), pages 805-826, September.
  3. Hjalmarsson, Erik, 2000. "Nord Pool: A Power Market Without Market Power," Working Papers in Economics 28, University of Gothenburg, Department of Economics.
  4. Catherine D. Wolfram, 1998. "Strategic Bidding in a Multiunit Auction: An Empirical Analysis of Bids to Supply Electricity in England and Wales," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 703-725, Winter.
  5. Fridolfsson, Sven-Olof & Tangerås, Thomas P., 2009. "Market power in the Nordic electricity wholesale market: A survey of the empirical evidence," Energy Policy, Elsevier, vol. 37(9), pages 3681-3692, September.
  6. John Kwoka & Vladlena Sabodash, 2011. "Price Spikes in Energy Markets: “Business by Usual Methods” or Strategic Withholding?," Review of Industrial Organization, Springer, vol. 38(3), pages 285-310, May.
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