Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/26930
Authors: 
Gebhardt, Georg
Höffler, Felix
Year of Publication: 
2007
Series/Report no.: 
Preprints of the Max Planck Institute for Research on Collective Goods 2007,15
Abstract: 
Prices may differ between regional markets if transport capacities are limited. We develop a new approach to determine to which extent such differences stem from limited participation in cross-border trader, i.e. lack of integration, rather than from bottlenecks. This approach considers both sets of prices (transport and spot prices). We derive a theoretical integration benchmark for the typical case where transportation markets clear before the product markets, using Grossman’s (1976) notion of a rational expectations equilibrium. We compare the benchmark to data from European electricity markets, where spot prices differ between countries and interconnection capacities between national markets are scarce. The data reject the integration hypothesis: Capacity prices contain too little information about the price differential; this indicates that well informed traders, e.g. large national incumbents, do not engage in cross-border trade. While unprofitable in the short run, this behavior may result from anti-competitive long run strategies.
Subjects: 
Market integration
electricity markets
interconnector
competition policy
rational expectations equilibrium
JEL: 
G14
D84
L94
Document Type: 
Working Paper

Files in This Item:
File
Size
829.49 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.