INEFFICIENCIES AND MARKET POWER IN FINANCIAL ARBITRAGE: A STUDY OF CALIFORNIA'S ELECTRICITY MARKETS*

Severin Borenstein, James Bushnell, Christopher Knittel and Catherine Wolfram

Journal of Industrial Economics, 2008, vol. 56, issue 2, 347-378

Abstract: For two years prior to the collapse of California's restructured electricity market, power traded in both a forward and a spot market for delivery at the same times and locations. Nonetheless, prices in the two markets often differed in significant and predictable ways. This apparent inefficiency persisted, we argue, because most firms believed that trading on inter‐market price differences would yield regulatory penalties. For the few firms that did make such trades, it was not profit‐maximizing to eliminate the price differences entirely. Skyrocketing prices in 2000 changed the major buyers' (utilities') incentives and exacerbated the price differentials between the markets.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (41)

Downloads: (external link)
https://doi.org/10.1111/j.1467-6451.2008.00344.x

Related works:
Working Paper: Inefficiencies and Market Power in Financial Arbitrage: A Study of California's Electricity Markets (2008)
Working Paper: Inefficiencies and Market Power in Financial Arbitrage: A Study of California?s Electricity Markets (2006)
Working Paper: Inefficiencies and Market Power in Financial Arbitrage: A Study of California’s Electricity Markets (2006)
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:bla:jindec:v:56:y:2008:i:2:p:347-378

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0022-1821

Access Statistics for this article

Journal of Industrial Economics is currently edited by Pierre Regibeau, Yeon-Koo Che, Kenneth Corts, Thomas Hubbard, Patrick Legros and Frank Verboven

More articles in Journal of Industrial Economics from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().