Publication:
Price Wars and Collusion in the Spanish Electricity Market

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2005-04
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Elsevier
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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. Using a Cournot model among contracted firms, we characterize firms' optimal deviations from a collusive agreement, and identify trigger variables that could be used to discourage deviations. By interpreting the effects of the triggers in affecting the likelihood of starting a price war, we are able to infer some of the properties of the collusive strategy that firms might have followed.
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Electricity markets, Tacit collusion, Markow switching
Bibliographic citation
International Journal of Industrial Organization, (2005), 23 (3-4), p. 155-181