Electricity pricing and market power: Evidence from Germany
The aim of this paper is to develop a methodology for measuring the exercise of potential market power in liberalized electricity markets. We therefore investigate producer behavior in the context of electricity pricing with respect to fundamental time-dependent marginal cost (TMC), i.e. CO2- and fuel cost. In doing so, we do not - in contrast to most current approaches to market power investigation - rely on an estimate of the entire generation cost, which inevitably suffers from the lack of appropriate available data. Applying an analytical model of a day-ahead electricity market, we derive work-on rates, which provide information about the impact of TMC variations on electricity prices in the market constellations of perfect competition, quasi-monopoly and monopoly. Comparing these model-based work-on rates with actual work-on rates, estimated by an adjusted first-differences regression model of German power prices on the cost for hard coal, natural gas and emission allowances, we find evidence of the exercise of market power in the period 2006 to 2008. However, our results reveal that German market competitiveness increases marginally. We confirm our results by simulating a TMC-driven diffusion model of futures power prices estimated by maximum-likelihood.
|Date of creation:||2008|
|Contact details of provider:|| Postal: 02 51 / 83-2 29 10|
Phone: 02 51 / 83-2 29 10
Fax: 02 51 / 83-2 83 99
Web page: http://www.wiwi.uni-muenster.de/cawm/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Willems, Bert & Rumiantseva, Ina & Weigt, Hannes, 2009.
"Cournot versus Supply Functions: What does the data tell us?,"
Elsevier, vol. 31(1), pages 38-47, January.
- Willems, Bert & Rumiantseva, I. & Weigt, H., 2007. "Cournot Versus Supply Functions : What does the Data Tell us?," Discussion Paper 2007-63, Tilburg University, Center for Economic Research.
- Bert WILLEMS & Ina RUMIANTSEVA & Hannes WEIGT, 2007. "Cournot versus supply functions: what does the data tell us?," Working Papers Department of Economics ces0720, KU Leuven, Faculty of Economics and Business, Department of Economics.
- Willems, Bert & Rumiantseva, I. & Weigt, H., 2007. "Cournot versus Supply Functions : What Does the Data tell us?," Discussion Paper 2007-023, Tilburg University, Tilburg Law and Economic Center.
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716.
- 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.
- Richard Green, 2004. "Did English Generators Play Cournot? Capacity withholding in the Electricity Pool," Working Papers 0410, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- Green, R., 2004. "‘Did English Generators Play Cournot? Capacity Withholding in the Electricity Pool’," Cambridge Working Papers in Economics 0425, Faculty of Economics, University of Cambridge.
- Ciarreta, Aitor & Gutierrez-Hita, Carlos, 2006. "Supply function vs. quantity competition in supergames," International Journal of Industrial Organization, Elsevier, vol. 24(4), pages 773-783, July.
- Bolle, Friedel, 1992. "Supply function equilibria and the danger of tacit collusion : The case of spot markets for electricity," Energy Economics, Elsevier, vol. 14(2), pages 94-102, April.
- Felix Müsgens, 2006. "QUANTIFYING MARKET POWER IN THE GERMAN WHOLESALE ELECTRICITY MARKET USING A DYNAMIC MULTI-REGIONAL DISPATCH MODEL -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 54(4), pages 471-498, December.
- Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-953, October.
- Green, Richard & Newbery, David M G, 1991. "Competition in the British Electricity Spot Market," CEPR Discussion Papers 557, C.E.P.R. Discussion Papers.
- Holmberg, Par, 2008. "Unique supply function equilibrium with capacity constraints," Energy Economics, Elsevier, vol. 30(1), pages 148-172, January.
- Holmberg, Pär, 2004. "Unique Supply Function Equilibrium with Capacity Constraints," Working Paper Series 2004:20, Uppsala University, Department of Economics.
- Jos Sijm & Karsten Neuhoff & Yihsu Chen, 2006. "CO 2 cost pass-through and windfall profits in the power sector," Climate Policy, Taylor & Francis Journals, vol. 6(1), pages 49-72, January.
- Sijm, J. & Neuhoff, K. & Chen, Y., 2006. "CO2 cost pass through and windfall profits in the power sector," Cambridge Working Papers in Economics 0639, Faculty of Economics, University of Cambridge.
- Bonacina, Monica & Gulli`, Francesco, 2007. "Electricity pricing under "carbon emissions trading": A dominant firm with competitive fringe model," Energy Policy, Elsevier, vol. 35(8), pages 4200-4220, August.
- Lise, Wietze & Linderhof, Vincent & Kuik, Onno & Kemfert, Claudia & Ostling, Robert & Heinzow, Thomas, 2006. "A game theoretic model of the Northwestern European electricity market--market power and the environment," Energy Policy, Elsevier, vol. 34(15), pages 2123-2136, October.
- Benth, Fred Espen & Koekebakker, Steen, 2008. "Stochastic modeling of financial electricity contracts," Energy Economics, Elsevier, vol. 30(3), pages 1116-1157, May. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:zbw:cawmdp:9. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.