Strategic Reneging and Market Power in Sequential Markets

David Benatia and Étienne Billette de Villemeur

RAND Journal of Economics, 2025, vol. 56, issue 1, 3-34

Abstract: This article investigates the incentives for firms with market power to manipulate markets by strategically reneging on forward commitments. We first study the behavior of a dominant firm in a two‐period model with demand uncertainty. We then use the model's predictions and a machine learning approach to investigate multiple occurrences of reneging on long‐term commitments in Alberta's electricity market in 2010–2011. We find that a supplier significantly increased its revenues by strategically reneging on its capacity availability obligations, causing Alberta's annual electricity procurement costs to increase by as much as $600 million (+17%).

Date: 2025
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https://doi.org/10.1111/1756-2171.12488

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Persistent link: https://EconPapers.repec.org/RePEc:bla:randje:v:56:y:2025:i:1:p:3-34

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