Strategic Reneging in Sequential Imperfect Markets

David Benatia and Etienne Billette de Villemeur

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates the incentives to manipulate sequential markets by strategically reneging on forward commitments. We first study the behavior of a dominant firm in a two-period model with demand uncertainty. Our results show that sequential markets may be a source of inefficiencies. We then test the model’s predictions using occurrences of reneging on long-term commitments in Alberta’s electricity market. We implement a machine learning approach to identify and evaluate manipulations. We find that a dominant supplier increased its revenues by $35 million during the winter of 2010-11, causing Alberta’s electricity procurement costs to increase by above $330 million (20%).

Keywords: Imperfect Commitment; Market Manipulation; MarketPower; Electricity Markets (search for similar items in EconPapers)
JEL-codes: D43 L12 L51 L94 (search for similar items in EconPapers)
Date: 2019-01, Revised 2020-01
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https://mpra.ub.uni-muenchen.de/105280/1/MPRA_paper_105280.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/111090/8/MPRA_paper_111090.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/115564/16/MPRA_paper_115564.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/118132/1/Strategic ... script__RAND_2__.pdf revised version (application/pdf)

Related works:
Working Paper: Strategic Reneging in Sequential Imperfect Markets (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:105280

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