Price Spikes in Energy Markets: “Business by Usual Methods” or Strategic Withholding?

Price Spikes in Energy Markets: “Business by Usual Methods” or Strategic Withholding? There is considerable controversy whether price spikes in energy markets represent demand shifts in the presence of inelastic supply or strategic withholding by suppliers. This paper sets out a new method for distinguishing the two possible explanations, namely, determining whether supply shifts to the left during periods of high demand. Such behavior would be inconsistent with ordinary profit-maximization, that is, “business by usual methods.” This approach is applied to a period of unusually high prices in the New York wholesale electricity market in 2001. There is evidence of strategic withholding for one brief period. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Price Spikes in Energy Markets: “Business by Usual Methods” or Strategic Withholding?

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Publisher
Springer US
Copyright
Copyright © 2011 by Springer Science+Business Media, LLC.
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-011-9294-8
Publisher site
See Article on Publisher Site

Abstract

There is considerable controversy whether price spikes in energy markets represent demand shifts in the presence of inelastic supply or strategic withholding by suppliers. This paper sets out a new method for distinguishing the two possible explanations, namely, determining whether supply shifts to the left during periods of high demand. Such behavior would be inconsistent with ordinary profit-maximization, that is, “business by usual methods.” This approach is applied to a period of unusually high prices in the New York wholesale electricity market in 2001. There is evidence of strategic withholding for one brief period.

Journal

Review of Industrial OrganizationSpringer Journals

Published: May 7, 2011

References

  • Understanding strategic bidding in multi-unit auctions: A case study of the texas electricity spot market
    Hortacsu, A.; Puller, S. L.

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