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Demand Elasticity and Market Power in the Spanish Electricity Market

Author

Listed:
  • Aitor Ciarreta
  • María Paz Espinosa

    (Departamento Fundamentos del Análisis Económico II, Universidad de Pais Vasco.)

Abstract

In this paper we check wether generators' bid behavior at the Spanish wholesale electricity market is consistent with the hypothesis of profit maximization on their residual demands. Using OMEL data, we find the arc-electricity of residual demand around the system marginal price. The results suggest that the larger firms are not actually profit-maximizition on their residual demands while smaller generators' behavior is consistent with profit maximization. We argue how the regulatory environment may drive these results. Finally, we repeat the analysis for the firstsession of the intra-day market where presumably firms may not have the same incentives as in the day-ahead market.

Suggested Citation

  • Aitor Ciarreta & María Paz Espinosa, 2006. "Demand Elasticity and Market Power in the Spanish Electricity Market," Working Papers 0606, Departament Empresa, Universitat Autònoma de Barcelona, revised Jun 2006.
    • Handle: RePEc:bbe:wpaper:0606
    as

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    References listed on IDEAS

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    Cited by:

    1. Vitor Marques & Isabel Soares & Adelino Fortunato, 2008. "Measuring market power in the Iberian electricity wholesale market through the residual demand curve," CEF.UP Working Papers 0801, Universidade do Porto, Faculdade de Economia do Porto.

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    More about this item

    Keywords

    Market power; electricity market; residual demand elasticity; profit maximization.;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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