Dynamic Competition and Arbitrage in Electricity Markets: The Role of Financial Players
American Economic Journal: Microeconomics
vol. 14,
no. 3, August 2022
(pp. 665-99)
Abstract
I study the effects of financial players who trade alongside physical buyers and sellers in electricity markets. Using detailed firm-level data, I examine physical and financial firms' responses to regulation that exogenously increased financial trading. I show that the effect of speculators on generators' market power depends on the kind of equilibrium they are in. I develop a test of the null of static Nash equilibrium and reject it. To implement the test, I present a new method to define markets using machine-learning tools. I find that increased financial trading reduced generators' market power and increased consumer surplus.Citation
Mercadal, Ignacia. 2022. "Dynamic Competition and Arbitrage in Electricity Markets: The Role of Financial Players." American Economic Journal: Microeconomics, 14 (3): 665-99. DOI: 10.1257/mic.20190276Additional Materials
JEL Classification
- C45 Neural Networks and Related Topics
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- G13 Contingent Pricing; Futures Pricing; option pricing
- L13 Oligopoly and Other Imperfect Markets
- L94 Electric Utilities
- L98 Industry Studies: Utilities and Transportation: Government Policy
- Q41 Energy: Demand and Supply; Prices
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