Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Monday, September 10, 2012

Can Producers Apply a Capacity Cutting Strategy to Increase Prices? The Case of the England and Wales Electricity Market

Posted by D. Daniel Sokol

Sherzod Tashpulatov and Lubomir Lizal (CERGE EI) ask Can Producers Apply a Capacity Cutting Strategy to Increase Prices? The Case of the England and Wales Electricity Market.

ABSTRACT: Promoting competition among electricity producers is primarily targeted at ensuring low electricity prices for consumers. Producers could, however, withhold part of production facilities (i.e., apply a capacity cutting strategy) and thereby push more expensive production facilities to satisfy demand for electricity. This behavior could eventually lead to a higher price determined through a uniform price auction. In this paper, using the case of the England and Wales wholesale electricity market, we empirically examine whether producers can indeed apply a capacity cutting strategy. We analyze the bidding behavior of producers during high- and low-demand trading periods across trading days and find direct and indirect evidence for producers' successful manipulation of capacity bids targeted at increasing a wholesale electricity price. We also examine whether the regulatory reforms to improve competition were successful at mitigating the extent of strategic capacity manipulation.

http://lawprofessors.typepad.com/antitrustprof_blog/2012/09/can-producers-apply-a-capacity-cutting-strategy-to-increase-prices-the-case-of-the-england-and-wales.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef0176171098d0970c

Listed below are links to weblogs that reference Can Producers Apply a Capacity Cutting Strategy to Increase Prices? The Case of the England and Wales Electricity Market :

Comments

Post a comment