scholarly journals Sequential Markets, Market Power, and Arbitrage

2016 ◽  
Vol 106 (7) ◽  
pp. 1921-1957 ◽  
Author(s):  
Koichiro Ito ◽  
Mar Reguant
Keyword(s):  
Market Power ◽  
Electricity Market ◽  
Imperfect Competition ◽  
Strategic Behavior ◽  
Structural Model ◽  
Firm Behavior ◽  
Welfare Effects ◽  
Price Premium ◽  
Model Predictions ◽  
Price Differences

We develop a framework to characterize strategic behavior in sequential markets under imperfect competition and restricted entry in arbitrage. Our theory predicts that these two elements can generate a systematic price premium. We test the model predictions using microdata from the Iberian electricity market. We show that the observed price differences and firm behavior are consistent with the model. Finally, we quantify the welfare effects of arbitrage using a structural model. In the presence of market power, we show that full arbitrage is not necessarily welfare-enhancing, reducing consumer costs but increasing deadweight loss. (JEL D42, D43, L12, L13, L94, Q41)

scholarly journals Asymmetric Information and Imperfect Competition in Lending Markets

2018 ◽  
Vol 108 (7) ◽  
pp. 1659-1701 ◽  
Author(s):  
Gregory S. Crawford ◽  
Nicola Pavanini ◽  
Fabiano Schivardi
Keyword(s):  
Asymmetric Information ◽  
Market Power ◽  
Adverse Selection ◽  
Imperfect Competition ◽  
Structural Model ◽  
Negative Effects ◽  
Credit Supply ◽  
Lines Of Credit ◽  
Credit Demand ◽  
Firm Default

We study the effects of asymmetric information and imperfect competition in the market for small business lines of credit. We estimate a structural model of credit demand, loan use, pricing, and firm default using matched firm-bank data from Italy. We find evidence of adverse selection in the form of a positive correlation between the unobserved determinants of demand for credit and default. Our counterfactual experiments show that while increases in adverse selection increase prices and defaults on average, reducing credit supply, banks’ market power can mitigate these negative effects. (JEL D22, D82, G21, G32, L13, L25)

scholarly journals A New Model to Simulate Local Market Power in a Multi-Area Electricity Market: Application to the European Case

Energies ◽  
2019 ◽  
Vol 12 (11) ◽  
pp. 2068 ◽  
Author(s):  
Alberto Orgaz ◽  
Antonio Bello ◽  
Javier Reneses
Keyword(s):  
Power Systems ◽  
Market Power ◽  
Electricity Markets ◽  
Electricity Market ◽  
Imperfect Competition ◽  
System Analysis ◽  
Original Method ◽  
Local Market ◽  
The Status ◽  
New Policies

The work presented in this article proposes an original method that models the medium-term market equilibrium under imperfect competition circumstances in multi-area electricity systems. It provides a system analysis considering multiple market splitting possibilities, where local market power may appear according to the status of the interconnections. As a result of new policies and regulations, power systems are increasingly integrating the existing electricity markets in unified frameworks. The integration of electricity markets poses highly challenging tasks due to the uncertainty that comes from the agents’ strategic behaviors which depend on multiple factors, for instance, the state of the interconnections. When it comes to modeling these effects, the purpose is to identify each strategy by using conjectured-price responses that depend on the different states of the system. Consequently, the problem becomes highly combinatorial, which heightens its size as well as its complexity. Therefore, the purpose of this work’s methodology is the reduction of the possible network configurations so as to ensure a computational tractability in the problem. In order to validate this methodology, it has been put to the test in a realistic and full-scale two-year operation planning model of the European electricity market that consists of a group of nine countries.

scholarly journals A Flexible Responsive Load Economic Model for Industrial Demands

Processes ◽  
2019 ◽  
Vol 7 (3) ◽  
pp. 147 ◽  
Author(s):  
Reza Sharifi ◽  
Amjad Anvari-Moghaddam ◽  
S. Fathi ◽  
Vahid Vahidinasab
Keyword(s):  
Market Power ◽  
Electricity Market ◽  
Economic Model ◽  
Imperfect Competition ◽  
Supply Side ◽  
Demand Side ◽  
Renewable Energy Resources ◽  
Constant Elasticity ◽  
Pricing Scheme ◽  
A Company

The best pricing method for any company in a perfectly competitive market is the pricing scheme with regards to the marginal cost. In contrast to this environment, there is a market with imperfect competition. In this market, the price can be affected by some players in the generation/demand side (i.e., suppliers and/or buyers). In the economic literature, “market power” refers to a company that has the power to affect prices. In fact, market power is often defined as the ability to divert prices from competitive levels. In the electricity market, especially because of the integration of intermittent renewable energy resources (RESs) along with the inflexibility of demand, there are levels of market power on the supply side. Hence, implementation of demand response (DR) programs is necessary to increase the flexibility of the demand side to deal with the intermittency of renewable generations and at the same time tackle the market power of the supply side. This paper uses economic theories and mathematical formulations to develop a flexible responsive load economic model (FRLEM) based on real-time pricing (RTP) to show modification of the load profile and mitigation of the energy costs for an industrial zone. This model was developed based on constant elasticity of the substitution utility function, known as one of the most popular utility functions in microeconomics.

scholarly journals Competition in Power Generation: Ex-ante Analysis of Indonesia’s Electricity Market

Energies ◽  
2020 ◽  
Vol 13 (24) ◽  
pp. 6741
Author(s):  
Dzikri Firmansyah Hakam ◽  
Sudarso Kaderi Wiyono ◽  
Nanang Hariyanto
Keyword(s):  
Power System ◽  
Market Structure ◽  
Market Power ◽  
Electricity Markets ◽  
Electricity Market ◽  
Regulatory Reform ◽  
Optimal Number ◽  
Load Flow ◽  
Utility Company ◽  
Competitive Electricity Markets

This research optimises the mix and structure of Generation Companies (GenCos) in the Sumatra power system, Indonesia. Market power, indicating the ability to raise prices profitably above the competitive level, tends to be a significant problem in the aftermath of electricity market restructuring. In the process of regulatory reform and the development of competitive electricity markets, it is desirable and practical to establish an efficient number of competitor GenCos. Simulations of a power system account for multi-plant mergers of GenCos subject to a regulatory measure of the Residual Supply Index and the influence of direct current load flow and the topology of the system. This study simulates the Sumatra power system in order to determine the following: optimal market structure, efficient GenCo generation mix, and the optimal number of competitive GenCos. Further, this study seeks to empirically optimise the electricity generation mix and electricity market structure of the Sumatra power system using DC load flow optimisation, market power index, and multi-plant monopoly analysis. The simulations include generation and transmission constraints to represent network constraints. This research is the first to analyse the Sumatra power system using imperfect (Cournot) competition modelling. Furthermore, this study is the first kind to optimise the mix and structure of the Sumatra generation power market. The guidelines and methodology in this research can be implemented in other countries characterised by a monopoly electricity utility company.

scholarly journals An explanation of the profitability and market power of marginalized microenterprises

2017 ◽  
Vol 10 (1) ◽  
pp. 1987-1994
Author(s):  
Natanael Ramírez ◽  
Alejandro Mungaray ◽  
José G. Aguilar ◽  
Ramón Inzunza
Keyword(s):  
Market Power ◽  
Imperfect Competition ◽  
Econometric Model ◽  
Operating Conditions ◽  
Socioeconomic Conditions ◽  
Marginal Costs ◽  
Qualitative Variables ◽  
Productive Process ◽  
Pricing Power ◽  
Area Of Influence

This paper analyzes the behavior of marginalized microenterprises under an imperfect competition framework, where said economic units are capable of fixing a price above their marginal costs which allows them to survive and even be profitable despite their typical operating conditions. To prove this, we use an econometric model that considers the Lerner index as a variable dependent on a set of qualitative variables previously classified in accordance to their area of influence. We conclude that these microenterprises are capable of being profitable and operate with market power through their advertising and sales strategies and the flexibility in their productive process. In any case the pricing power is highly influenced by the socioeconomic conditions of the market in which it operates.

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