Bilateral Market Power and Vertical Integration in the Spanish Electricity Spot Market

Kühn, Kai‐Uwe; Machado, Matilde P.

doi:10.2139/ssrn.601061

“…See for example Kühn and Machado (2004) for the Spanish electricity market and Borenstein, Bushnell and Wolak (2002) for the Californian electricity market.…”

Section: Bidding In the Marketmentioning

confidence: 99%

Complementary Bidding Mechanisms and Startup Costs in Electricity Markets

Reguant¹

2014

The Review of Economic Studies

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Complementary Bidding Mechanisms and Startup Costs in Electricity MarketsAbstract I extend multi-unit auction estimation techniques to a setting in which firms can express cost complementarities over time. In the context of electricity markets, I show how the auction structure and bidding data can be used to estimate these complementarities, which in these markets arise due to startup costs. I find that startup costs are substantial and that taking them into account helps better explain firm bidding strategies and production patterns. As in other dynamic settings, I find that startup costs limit the ability of firms to change production over time, exacerbating fluctuations in market prices. These fluctuations can induce estimates of market power that ignore dynamic costs to overstate markup volatility, with predicted markups that can be even negative in periods of low demand. I show how accounting for startup costs can provide a natural correction for these markup biases.

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“…Kühn and Machado (2004), Bushnell et al (2005), Mansur (2007) and Baldursson and von der Fehr (2007) 10 These results contrast with those of the companion paper, Boom (2002), where the monopoly nearly always invests less and the social welfare is always improved by competition.…”

Section: The Modelmentioning

confidence: 87%

Vertically integrated firms' investments in electricity generating capacities

Boom

¹

2009

International Journal of Industrial Organization

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We compare investments in generating capacities of an integrated monopolist with the aggregate investments of two vertically integrated competing firms. The firms invest in their capacity and fix the retail price while electricity demand is uncertain. The wholesale price is determined in a unit price auction where the firms know the level of demand when they bid their capacities. Total capacities can be larger or smaller with a duopoly than with a monopoly. If the two firms select the Pareto dominant equilibrium, then the retail price is always higher and the social welfare lower in the duopoly case.

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“…Bushnell et al, 2005;Granitz and Klein, 1996;Kühn and Machado, 2004). The financial dependence between electricity and natural gas markets is not captured in the foreclosure argument, where causal pricing relationships are sequential from the upstream to the downstream segment.…”

Section: Discussionmentioning

confidence: 99%

Incentives and Coordination in Vertically Related Energy Markets

Micola

¹

,

Banal‐Estañol

²

,

Bunn

³

2006

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We present an agent-based model of a multi-tier energy market including gas shippers, electricity generators and retailers. We show how reward interdependence between strategic business units within a vertically integrated firm can increase its profits in oligopolistic energy markets. The effects are shown to be distinct from those of the raising rivals' costs model. In our case, higher prices relate to the nature of energy markets, which facilitate the emergence of financial netback effects. Terms of use: Documents in

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Bilateral Market Power and Vertical Integration in the Spanish Electricity Spot Market

Cited by 35 publications

References 16 publications

Complementary Bidding Mechanisms and Startup Costs in Electricity Markets

Complementary Bidding Mechanisms and Startup Costs in Electricity Markets

Vertically integrated firms' investments in electricity generating capacities

Incentives and Coordination in Vertically Related Energy Markets

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