Price Interventions and Competition in Electricity Markets: Effects on Entry, Liquidity and Bidding Behavior

Ahmed Hasan Shakir and Mihai Sandu
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Ahmed Hasan Shakir: Bucharest University of Economic Studies
Mihai Sandu: Bucharest University of Economic Studies

Romanian Competition Journal, 2026, vol. 5, issue 2, 88-101

Abstract: This paper analyzes the impact of government price interventions on competition in electricity markets, focusing on Romania (2018–2024) with comparisons to selected EU countries (Germany, Hungary, France). We examine three channels through which price caps and related measures affect market outcomes: (1) entry and exit of firms and market concentration (HHI), (2) market liquidity and price discovery in centralized trading, and (3) bidding behavior and the risk of tacit collusion. Using a unique dataset of market indicators and firm behavior, we employ descriptive statistics and econometric models (difference-in-differences and panel regressions) to evaluate the effects of recent intervention episodes (especially 2021–2023’s energy price cap schemes). Our findings indicate that short-term price caps and compensations, while protecting consumers, have coincided with reduced entry and increased exit of suppliers (raising concentration), a significant drop in exchange-based trading liquidity and price signal quality, and more uniform bidding patterns that could signal higher collusion risks. These outcomes vary by policy design and market context: for example, Romania’s broad price cap and retroactive taxation in 2022–2023 led to a sharp increase in HHI and a 30% decline in day-ahead market volume, whereas Germany’s more market-based consumer relief preserved robust liquidity. We contribute practical insights for competition and energy regulators, suggesting early-warning indicators (HHI spikes, liquidity droughts, parallel bidding) and recommending that extraordinary price control measures remain temporary with clear exit strategies to avoid lasting damage to competition.

Keywords: electricity competition; price cap; market concentration; liquidity; bidding behavior; tacit collusion. (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ris:rocojo:022702

DOI: 10.58276/RCJ.2025.2.3

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