Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/24736
Authors: 
Wölfing, Nikolas
Year of Publication: 
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

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