Sequential Markets, Market Power and Arbitrage

Koichiro Ito and Mar Reguant

No 20782, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a theoretical framework to characterize strategic behavior in sequential markets under imperfect competition and limited arbitrage. Our theory predicts that these two elements can generate a systematic price premium. We test the model predictions using micro-data 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 our setting, we show that full arbitrage is not necessarily welfare-enhancing in the presence of market power, reducing consumer costs but decreasing productive efficiency.

JEL-codes: D43 L13 L94 Q40 (search for similar items in EconPapers)
Date: 2014-12
New Economics Papers: this item is included in nep-com, nep-cta and nep-ene
Note: EEE IO
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published as Koichiro Ito & Mar Reguant, 2016. "Sequential Markets, Market Power, and Arbitrage," American Economic Review, American Economic Association, vol. 106(7), pages 1921-57, July.
Published as Koichiro Ito & Mar Reguant, 2016. "Sequential Markets, Market Power, and Arbitrage," American Economic Review, vol 106(7), pages 1921-1957.

Downloads: (external link)
http://www.nber.org/papers/w20782.pdf (application/pdf)

Related works:
Journal Article: Sequential Markets, Market Power, and Arbitrage (2016)
Working Paper: Sequential Markets, Market Power and Arbitrage (2015)
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:nbr:nberwo:20782

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w20782

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().