Price Wars and Collusion in the Spanish Electricity Market

Natalia Fabra () and Juan Toro
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Juan Toro: Centro de Estudios Andaluces, http://www.centrodeestudiosandaluces.es

No E2001/05, Economic Working Papers at Centro de Estudios Andaluces from Centro de Estudios Andaluces

Abstract: We analyze the pattern of pool prices in the Spanish electricity market during 1998 by means of a Time Varying Transition Probabilities Markov switching model. Our purpose is two­fold: firstly, to identify and date the drops in prices that cannot be accounted for by supply nor demand conditions; and secondly, under the assumption that these correspond with reversions to non­cooperative behaviour, to identify the trigger variables upon which a collusive equilibrium could be based upon. Our results confirm the hypothesis that two distinct price levels characterize the time series of pool prices, and point to the conclusion that price wars are induced by changes in the major generators' market shares. In turn, this shows that firms' pricing behaviour is highly influenced by the way in which the so­called Competition Transition Charges (CTCs) are computed.

Keywords: Electricity Markets; Tacit Collusion; Markov Switching (search for similar items in EconPapers)
JEL-codes: C22 L13 L94 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-ene
Date: 2001
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Related works:
Working Paper: Price Wars and Collusion in the Spanish Electricity Market (2004)
Journal Article: Price wars and collusion in the Spanish electricity market (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:cea:doctra:e2001_05

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