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Price Wars and Collusion in the Spanish Electricity Market

Author Info

  • Natalia Fabra

    (Universidad Carlos III de Madrid)

  • Juan Toro

    (Oxford University)

Abstract

\We analyze the time-series of prices in the Spanish electricity market by means of a time varying-transition-probability Markov switching model. Accounting for changes in demand and cost conditions (which reflect changes in input costs, capacity availability and hydro power), we show that the time-series of prices is characterized by two significantly different price levels. Based on a Green and Porter (1984)'s type of model that introduces several institutional details, we construct trigger variables that affect the likelihood of starting a price war. By interpreting the signs of the triggers, we are able to infer some of the properties of the collusive strategy that firms might have followed. We obtain more empirical support to Green and Porter's model than previous studies. REVISED: January 2004

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Paper provided by EconWPA in its series Industrial Organization with number 0212001.

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Length: 27 pages
Date of creation: 09 Dec 2002
Date of revision: 31 Aug 2003
Handle: RePEc:wpa:wuwpio:0212001
Note: Type of Document - Tex; prepared on IBM PC -; to print on PostScript; pages: 27
Contact details of provider: Web page: http://econwpa.repec.org

Keywords: Electricity Markets; Collusion; Markov Switching;

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Find related papers by JEL classification:
  • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
  • 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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  13. Green, Richard & Newbery, David M G, 1991. "Competition in the British Electricity Spot Market," CEPR Discussion Papers 557, C.E.P.R. Discussion Papers.
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  16. Glenn Ellison, 1994. "Theories of Cartel Stability and the Joint Executive Committee," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 37-57, Spring.
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