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Ito, Koichiro
Reguant, Mar
Year of Publication: 
Series/Report no.: 
CSIO Working Paper 0135
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 micro-data 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 deadweightloss.
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Working Paper

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