“Price Exposure and Market Power: Learning From Changes in Renewables Regulation”
Coautoreado con Imelda
Abstract: We explore the impact of firms’ price exposure on market power, taking into account two countervailing incentives. On the one hand, reducing price exposure mitigates firms’ incentives to increase prices. On the other, it also mitigates their incentives to arbitrage, which would ultimately weaken market power. We test this trade-off using detailed bid data from the Spanish electricity market, where regulation switched back and forth from exposing renewables to fixed prices (Feed-in-Tariffs) or to market prices (Feed-in-Premiums). Overall, we find that reducing firms’ price exposure through Feed-in-Tariffs contributed to weakening the dominant firms’ market power, even though it reduced price arbitrage.
Facultad de Ciencias Económicas y Administrativas UC
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