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Electricity market competition when forward contracts are pairwise efficient

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  • Van Moer, Geert

Abstract

This paper investigates competition in electricity markets when each pair of strategic firms exchanges forward obligations pairwise-efficiently. The gains from pairwise trade are specific to the counterparty, which can be horizontally- or vertically-related depending on whether it has access to flexibility in the spot market. The analysis shows that pairwise efficient forward trade rules out a bilateral oligopoly spot market where net buyers and net sellers strategically interact. Firms without flexibility close their position entirely in the forward market. Forward markets serve to absorb renewable energy shocks, even if forward contracts are unobservable and firms are risk-neutral.

Suggested Citation

  • Van Moer, Geert, 2019. "Electricity market competition when forward contracts are pairwise efficient," MPRA Paper 96660, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:96660
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    File URL: https://mpra.ub.uni-muenchen.de/96660/1/MPRA_paper_96660.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Nash-in-Nash bargaining; bilateral oligopoly; renewables;

    JEL classification:

    • 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

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