Sequential Markets, Market Power, and Arbitrage

Koichiro Ito and Mar Reguant

American Economic Review, 2016, vol. 106, issue 7, 1921-57

Abstract: We develop a framework to characterize strategic behavior in sequential markets under imperfect competition and restricted entry in arbitrage. Our theory predicts that these two elements can generate a systematic price premium. We test the model predictions using microdata from the Iberian electricity market. We show that the observed price differences and firm behavior are consistent with the model. Finally, we quantify the welfare effects of arbitrage using a structural model. In the presence of market power, we show that full arbitrage is not necessarily welfare-enhancing, reducing consumer costs but increasing deadweight loss.

JEL-codes: D42 D43 L12 L13 L94 Q41 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/aer.20141529
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (57)

Downloads: (external link)
https://www.aeaweb.org/articles?id=10.1257/aer.20141529 (application/pdf)
https://www.aeaweb.org/aer/data/10607/20141529_data.zip (application/zip)
https://www.aeaweb.org/articles/attachments?retrie ... L7iq7wcQGX4gIG2imhVI (application/pdf)
https://www.aeaweb.org/articles/attachments?retrie ... TetbNb5qlQIMXHHooFoF (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: Sequential Markets, Market Power and Arbitrage (2015)
Working Paper: Sequential Markets, Market Power and Arbitrage (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aecrev:v:106:y:2016:i:7:p:1921-57

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().