Dynamic Competition and Arbitrage in Electricity Markets: The Role of Financial Players

Ignacia Mercadal

American Economic Journal: Microeconomics, 2022, vol. 14, issue 3, 665-99

Abstract: I study the effects of financial players who trade alongside physical buyers and sellers in electricity markets. Using detailed firm-level data, I examine physical and financial firms' responses to regulation that exogenously increased financial trading. I show that the effect of speculators on generators' market power depends on the kind of equilibrium they are in. I develop a test of the null of static Nash equilibrium and reject it. To implement the test, I present a new method to define markets using machine-learning tools. I find that increased financial trading reduced generators' market power and increased consumer surplus.

JEL-codes: C45 D83 G13 L13 L94 L98 Q41 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1257/mic.20190276

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