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Title:Asymmetric Price Transmission in Supply Function Equilibrium, Carbon Prices and the German Electricity Spot Market PDF Logo
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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