Price Wars and Collusion in the Spanish Electricity Market

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  • 1 January 2002
    • preprint
      • Published in RePEc
Abstract
We analyze the time-series of prices in the Spanish electricity market by means of a time varying-transition-probabilities Markov Switching model. Accounting for demand and supply conditions, we show that the time-series of prices is characterized by two significantly different price levels. Based on a Green and Porter type of model that specifically introduces the rules of the bidding process, we construct several triggers for price wars. The triggers considered are statistically significant and report the predicted signs. In particular, price wars are triggered by unexpected changes in the major generators` market shares and revenues. We obtain more empirical support to Green and Porter`s model than previous studies.

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