How Competitive is Cross-border Trade of Electricity? Theory and Evidence from European Electricity Markets

Georg Gebhardt and Felix Hffler

The Energy Journal, 2013, vol. 34, issue 1, 125-154

Abstract: Integrating national markets is a major policy target in the European energy market. Yet, wholesale prices for electricity still differ significantly. Whether these price differences are caused only by limited interconnector capacities or also by lack of cross-border competition is an open question. To address this question, we develop a new approach to determine to which extent price differences stem from limited participation in cross-border trade. We derive a theoretical integration benchmark, using Grossman’s (1976) notion of a rational expectations equilibrium. We compare the benchmark to data from European electricity markets. The data reject the integration hypothesis and indicate that well informed traders do not engage in cross-border trade.

Keywords: Market integration; Electricity markets; Interconnector; Competition policy; Rational expectations equilibrium (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:34:y:2013:i:1:p:125-154

DOI: 10.5547/01956574.34.1.6

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