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Electricity prices and cross-border trade: volume and strategy effects

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  • Parisio, Lucia
  • Bosco, Bruno

Abstract

In this paper we derive equilibrium bid functions in isolated domestic electricity markets and then analyse their modifications when cross-border trade among them is managed using the implicit auction method. We show that cross-border trade can induce price convergence across countries and thereby reallocate gains and losses as a result of two concomitant effects: a “volume” effect due to the mere increase/decrease of demand and supply in each market and a “bid effect” due to the modifications of bid functions brought about by interconnection. The latter effect can either contrast or reinforce the former. We derive conditions affecting the net result.

Suggested Citation

  • Parisio, Lucia & Bosco, Bruno, 2006. "Electricity prices and cross-border trade: volume and strategy effects," MPRA Paper 473, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:473
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    File URL: https://mpra.ub.uni-muenchen.de/473/1/MPRA_paper_473.pdf
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    References listed on IDEAS

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    1. Natalia Fabra & Nils‐Henrik Fehr & David Harbord, 2006. "Designing electricity auctions," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 23-46, March.
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    Citations

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    Cited by:

    1. van Koten, Silvester, 2012. "Merchant interconnector projects by generators in the EU: Profitability and allocation of capacity," Energy Policy, Elsevier, vol. 41(C), pages 748-758.
    2. Pellini, Elisabetta, 2012. "Measuring the impact of market coupling on the Italian electricity market," Energy Policy, Elsevier, vol. 48(C), pages 322-333.
    3. Silvester Koten, 2013. "Legal unbundling and auctions in vertically integrated (utilities) markets," European Journal of Law and Economics, Springer, vol. 36(3), pages 543-573, December.
    4. Bruno Bosco & Lucia Parisio & Matteo Pelagatti, 2010. "Estimating Marginal Costs and Market Power in the Italian Electricity Auctions," Working Papers 20100201, Università degli Studi di Milano-Bicocca, Dipartimento di Statistica.
    5. Bruno Bosco & Lucia Parisio & Matteo Pelagatti & Fabio Baldi, 2010. "Long-run relations in european electricity prices," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(5), pages 805-832.
    6. Knaut, Andreas & Paschmann, Martin, 2017. "Decoding Restricted Participation in Sequential Electricity Markets," EWI Working Papers 2017-5, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI), revised 31 Aug 2017.
    7. Chalvatzis, Konstantinos J. & Hooper, Elizabeth, 2009. "Energy security vs. climate change: Theoretical framework development and experience in selected EU electricity markets," Renewable and Sustainable Energy Reviews, Elsevier, vol. 13(9), pages 2703-2709, December.
    8. Srinivasan, Sunderasan, 2013. "Electricity as a traded good," Energy Policy, Elsevier, vol. 62(C), pages 1048-1052.
    9. Bosco, Bruno & Parisio, Lucia & Pelagatti, Matteo, 2012. "Strategic bidding in vertically integrated power markets with an application to the Italian electricity auctions," Energy Economics, Elsevier, vol. 34(6), pages 2046-2057.
    10. Bosco, Bruno & Parisio, Lucia & Pelagatti, Matteo, 2013. "Price-capping in partially monopolistic electricity markets with an application to Italy," Energy Policy, Elsevier, vol. 54(C), pages 257-266.
    11. Meeus, Leonardo, 2011. "Implicit auctioning on the Kontek Cable: Third time lucky?," Energy Economics, Elsevier, vol. 33(3), pages 413-418, May.

    More about this item

    Keywords

    Electricity markets; implicit auctions; cross-border trade;

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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