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 re°ect changes in input costs, capacity avail-
abiliWe 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 re°ect changes in input costs, capacity avail-
ability and hydro power), we show that the time-series of prices is characterized by
two signi¯cantly di®erent price levels. Based on a Green and Porter (1984)'s type of
model that introduces several institutional details, we construct trigger variables that
a®ect 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 ¯rms might
have followed. We obtain more empirical support to Green and Porter's model than
previous studies.[+][-]