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http://hdl.handle.net/10419/24736
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| Title: | | Asymmetric Price Transmission in Supply Function Equilibrium, Carbon Prices and the German Electricity Spot Market  |
| Authors: | | Wölfing, Nikolas |
| Issue Date: | | 2008 |
| Series/Report no.: | | ZEW Discussion Papers 08-040 |
| Abstract: | | In January 2007, first evidence of an asymmetric pass-through of CO2 emission allowance prices was reported for the German electricity spot market. This paper explores the theoretical basis for such an asymmetry in the context of a supply function bidding duopoly. It interprets fluctuating carbon prices as a coordination mechanism for tacitly colluding firms and studies incentive compatibility in the repeated game. It is new in its attempt to model asymmetric behaviour in a spot market without relevant frictions, and gives a reasoning why the asymmetry shows up for emission allowances only. The paper concludes with a theorem: that asymmetric price transmission is sustained up to a certain maximum level which might include the monopoly solution and that this mechanism is always preferred to non-cooperation. |
| Subjects: | | Asymmetric price transmission Electricity spot markets Emission allowances |
| JEL: | | D82 C73 Q41 L13 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Publikationen von Forscherinnen und Forschern des ZEW ZEW Discussion Papers
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