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Strategic Withholding through Production Failures

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Abstract

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.

Suggested Citation

  • Fogelberg, Sara & Lazarczyk, Ewa, 2014. "Strategic Withholding through Production Failures," Working Paper Series 1015, Research Institute of Industrial Economics.
  • Handle: RePEc:hhs:iuiwop:1015
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    File URL: http://www.ifn.se/wfiles/wp/wp1015.pdf
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    References listed on IDEAS

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    1. John Kwoka & Vladlena Sabodash, 2011. "Price Spikes in Energy Markets: “Business by Usual Methods” or Strategic Withholding?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(3), pages 285-310, May.
    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. 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.
    4. David M. Newbery, 1995. "Power Markets and Market Power," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 39-66.
    5. 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.
    6. Hjalmarsson, Erik, 2000. "Nord Pool: A Power Market Without Market Power," Working Papers in Economics 28, University of Gothenburg, Department of Economics.
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    Cited by:

    1. Arina Nikandrova & Jevgenijs Steinbuks, 2017. "Contracting for the second best in dysfunctional electricity markets," Journal of Regulatory Economics, Springer, vol. 51(1), pages 41-71, February.
    2. Lundin, Erik, 2016. "Market Power and Joint Ownership: Evidence from Nuclear Plants in Sweden," Working Paper Series 1113, Research Institute of Industrial Economics.
    3. Bergler, Julian & Heim, Sven & Hüschelrath, Kai, 2017. "Strategic capacity withholding through failures in the German-Austrian electricity market," Energy Policy, Elsevier, vol. 102(C), pages 210-221.
    4. Lundin, Erik & Tangerås, Thomas, 2017. "Cournot Competition in Wholesale Electricity Markets: The Nordic Power Exchange, Nord Pool," Working Paper Series 1191, Research Institute of Industrial Economics.

    More about this item

    Keywords

    Electricity markets; Urgent Market Messages (UMMs); Unplanned failures;

    JEL classification:

    • L49 - Industrial Organization - - Antitrust Issues and Policies - - - Other
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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