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on Industrial Competition |
| By: | Alex Barrachina (University Carlos III); Yair Tauman (IDC Herzliya and Stony Brook); Amparo Urbano Salvador (ERI-CES) |
| Abstract: | We analyze industrial espionage in the context of entry deterrence. We consider a monopoly incumbent, who may expand capacity to deter entry, and a potential entrant who owns an inaccurate Intelligence System. The Intelligence System generates a noisy signal on incumbent’s actions and the potential entrant decides whether to enter based on this signal. If the precision of the Intelligence System is commonly known, the incumbent will signal-jam to manipulate the distribution of likely signals and hence the entrant’s decisions. Therefore, the incumbent will benefit from his rival’s espionage. In contrast, the spying firm (the entrant) will typically gain if the espionage accuracy is sufficiently high and privately known by her. In this setting, the market will be more competitive under espionage. |
| Keywords: | Espionage; Entry; Asymmetric information; Signal-Jamming. |
| JEL: | C72 D82 L10 L12 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:dbe:wpaper:0113&r=com |
| By: | Berno Buechel (University of Hamburg); Nils Röhl (University of Paderborn) |
| Abstract: | In the framework of spatial competition, two or more players strategically choose a location in order to attract consumers. It is assumed standardly that consumers with the same favorite location fully agree on the ranking of all possible locations. To investigate the necessity of this questionable and restrictive assumption, we model heterogeneity in consumers' distance perceptions by individual edge lengths of a given graph. A profile of location choices is called a ``robust equilibrium'' if it is a Nash equilibrium in several games which differ only by the consumers' perceptions of distances. For a finite number of players and any distribution of consumers, we provide a full characterization of all robust equilibria and derive structural conditions for their existence. Furthermore, we discuss whether the classical observations of minimal differentiation and inefficiency are robust phenomena. Thereby, we find strong support for an old conjecture that in equilibrium firms form local clusters. |
| Keywords: | spatial competition, Hotelling-Downs, networks, graphs, Nash equilibrium, median, minimal differentiation |
| JEL: | C72 D49 P16 D43 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:pdn:wpaper:58&r=com |
| By: | Pietri, Antoine; Tazdaït , Tarik; Vahabi, Mehrdad |
| Abstract: | While economic historians have stressed the importance of price competition in the protection market, theorists of conflictual activity have argued against the extrapolation of this form of competition in the protection market and favored competition through the quantity of conflictual effort. We purport to show the relevance of price competition in the protection market by focusing on the competition between empires. By distinguishing absolute and differential protection rents, we first define coercive rivalry and price competition among empires and then establish three types of empires, namely early empires of domination, territorial empires and merchant empires. Empires are structured on the basis of two types of hierarchies: “top-down” and “bottom-up” that determine their protection costs. We systematically study the impact of asymmetrical protection costs on price competition in the light of Bertrand equilibria. We provide an economic rationale for the use of violence throughout history in conformity with the findings of economic historians. |
| Keywords: | Absolute and differential protection rents; Bertrand equilibrium; Empires of domination; Merchant empires; Territorial Empires |
| JEL: | D74 H11 H56 L13 P16 |
| Date: | 2013–02–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:44368&r=com |
| By: | Vincent van den Berg (VU University Amsterdam) |
| Abstract: | Consider a government tendering the right to operate, for example, an airport, telecommunication network, or utility. There is an 'incumbent bidder' who owns a complement or substitute facility, and one entering 'new bidder'. With a 'standard auction' on the payment to the government, the incumbent is willing to bid higher than its expected profit from the facility as winning implies that it is a monopolist instead of a duopolist. The incumbent is therefore more likely to win. However, it tends to have a lower expected surplus unless the new bidder can never win, which occurs with 'private values' when the facilities are strong complements or substitutes and always with 'common values'. The 'standard auction' leads to an unregulated outcome which hurts consumers as tendered facilities tend to have limited competition. The government could improve the outcome by endogenously regulating using a 'price auction' on the price to be a sked to consumers. Now, it depends who is advantaged: with complements, the incumbent bids below its marginal cost and is more likely to win; with substitutes, it bids above and is less likely to win. The same effects occur in auctions on service quality or number of users. In many settings, the advantaged bidder always wins, and this can greatly affect the competition for the field. |
| Keywords: | tendering; overbidding; advantaged bidders; network markets |
| JEL: | D43 D44 L51 R42 |
| Date: | 2013–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20130033&r=com |
| By: | Ledezma, Ivan |
| Abstract: | Dans cet article nous étudions le comportement potentiellement défensif des innovateurs et son effet sur l’effort agrégé d’innovation. Un modèle à échelles de qualité est proposé afin d’analyser l’émergence d’avantages technologiques qui, in fine, déterminent qui innove (le leader ou ses concurrents). Dans ce contexte, la réglementation de marché peut avoir un effet positif ou négatif sur l’intensité en R&D. Elle peut être négativement associée à l’effort d’innovation dans des environnements hautement dérèglementés. Par contre, en économies qui dépassent un certain seuil de réglementation, susceptible de limiter effectivement la construction de barrières stratégiques, la réglementation induit des incitations à innover. Ces prédictions sont cohérentes avec des tests empiriques menés sur un échantillon d’industries appartenant à 14 pays de l’OCDE durant la période 1987-2003. |
| Abstract: | This paper analyses the potentially defensive behaviour of patent race winners and its effect on aggregate R&D effort. It proposes a quality-ladders model that endogenously determines leaders technology advantages and who innovates. Product market regulation can have either a positive or a negative effect on R&D intensity. The negative effect is likely to be observed in highly deregulated economies. The positive influence arises in more regulated environments and it is stronger for larger innovative jumps. These steady-state equilibrium outcomes are consistent with puzzling and contrasting patterns stemming from data on manufacturing industries for 14 OECD countries during the period 1987-2003. |
| Keywords: | réglementation; modèle à échelles de qualité; leaders innovants; R&D; product market regulation; quality ladders; Innovative Leaders; |
| JEL: | O33 O31 L13 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:ner:dauphi:urn:hdl:123456789/4966&r=com |
| By: | Sánchez, Rosario/R; Diaz, M. Angeles |
| Abstract: | One of the characteristics of the Spanish economy is the high percentage of small and medium-sized firms. Size is one of the factors that condition the managerial organization of the firms and their efficiency and productivity. Moreover size has been found a highly significant variable in explaining differences in firm’s innovative activities and the returns of R&D expenditures, and it is a well-established connection between productivity and innovative activities. This paper analyses the relationship between innovative activities and size and their effect over firms’ technical efficiency and then over their productivity. We also take into account other variables that could affect the relationship between productivity and innovative activities: industrial sector, market structure, or firms’ financial conditions. The analysis could help to design political economic measures to encourage small firms’ innovation and then contribute to improve their competitiveness. We use a micro panel data set of Spanish manufacturing firms, during the period 2004–2009, to simultaneously estimate a stochastic frontier production function and the inefficiency determinants. The data source is published in the Spanish Industrial Survey on Business Strategies (Encuesta sobre Estrategias Empresariales, ESEE), collected by the Fundación SEPI. Our preliminary results show that innovative firms are more efficient than non-innovative firms; and that small and medium-sized firms’ tent to be more efficient than large firms are. |
| Keywords: | small firms, technical efficiency, innovative activities. |
| JEL: | C23 J21 L60 |
| Date: | 2013–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:44592&r=com |
| By: | Vittoria Cerasi; Alessandro Fedele; Raffaele Miniaci |
| Abstract: | This paper presents a model where bank credit depends upon borrowers.product market structure. We show that a larger number of competitors in the industry may increase credit availability by enhancing the resale value of the collateralized productive assets. We also study how this bene.t of competition is affected by the existence of outsiders willing to bid for the collateralized productive assets of the insiders. Our model encompasses the standard case of Cournot competition either when the default probability goes to zero or when there are multiple outsiders bidding for the productive assets. We test the empirical implications of the theoretical analysis exploiting information on the access to finance of small and medium Italian firms and find supportive evidence. |
| Keywords: | collateralized loans, product market competition, productive assets resale value |
| JEL: | D22 L13 G33 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:238&r=com |
| By: | Jensen, Sissel (NHH); Kvaløy, Ola (UiS); Olsen, Trond (NHH); Sørgard, Lars (NHH) |
| Abstract: | The economics of crime and punishment postulates that higher punishment leads to lower crime levels, or less severe crime. It is how- ever hard to get empirical support for this rather intuitive relationship. This paper offers a model that can contribute to explain why this is the case. We show that if criminals can spend resources to reduce the probability of being detected, then a higher general punishment level can increase the crime level. In the context of antitrust enforcement, the model shows that competition authorities who attempt to fight cartels by means of tougher sanctions for all offenders may actually lead cartels to increase their overcharge when leniency programs are in place. |
| Keywords: | Antitrust Enforcement; Leniency; Economics of Crime |
| JEL: | A10 |
| Date: | 2013–03–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:stavef:2013_002&r=com |
| By: | Boying Liu; Ana Espinola-Arredondo (School of Economic Sciences, Washington State University) |
| Abstract: | This paper investigates under which conditions a regulator can strate- gically set an emission fee as a tool to induce a domestic firm to adopt a non-polluting technology and deter entry. We consider a market in which a monopolistic incumbent faces the threat of entry from firms that can choose between a dirty and a green technology. Our results show that, despite the fact of facing a polluting incumbent, an entrant might find it profitable to acquire a clean technology if the environmental tax is strin- gent enough. In addition, we demonstrate that an incumbent that adopts a clean technology is more likely to deter entry than an incumbent that keeps its dirty technology. Finally, we also show that a non-polluting duopoly market, in which all firms acquire clean technology, is socially preferred to a non-polluting monopoly market if the green technology cost is sufficiently low. However, if the clean technology becomes more expensive it may be socially optimal to have a polluting duopoly market in which only one firm adopts the green technology. |
| Keywords: | Technology Adoption; Market Structure; Emission Tax |
| JEL: | H23 L12 Q58 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:wsu:wpaper:espinola-14&r=com |
| By: | Hattori, Keisuke; Yoshikawa, Takeshi |
| Abstract: | We investigate the social desirability of free entry in the co-opetition model in which firms compete in a homogeneous product market while sharing common property resources that affect market size or consumers' willingness to pay for products. We show that free entry leads to socially excessive or insufficient entry into the market in the case of non-commitment co-opetition, depending on the magnitude of "business stealing" and "common property" effects of entry. On the other hand, in the case of pre-commitment co-opetition, free entry leads to excess entry and a decline in the common property resources. Interestingly, in the latter case, the excess entry result of Mankiw and Whinston (1986) and Suzumura and Kiyono (1987) holds even when there are no entry (set-up) costs for entrants. These results have important policy implications for entry regulations. |
| Keywords: | Excess entry; Free entry; Co-opetition; Entry regulations; Common property resource |
| JEL: | D43 L13 L51 |
| Date: | 2013–03–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:44816&r=com |
| By: | Hélène LATZER (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)) |
| Abstract: | This paper introduces multi-quality firms within a Schumpeterian framework. Featuring non-homothetic preferences and income disparities in an otherwise standard quality-ladder model, I indeed show that the resulting differences in the willingness to pay for quality among consumers generate both positive investments in R&D by industry leaders and positive market shares for more than one quality, hence allowing for the emergence of multi-product firms within a vertical innovation framework. This positive investment in R&D by incumbents is obtained with complete equal treatment in the R&D field between the incumbent patentholder and the challengers: in our framework, the incentive for a leader to invest in R&D stems from the possibility for an incumbent having innovated twice in a row to efficiently discriminate between rich and poor consumers displaying differences in their willingness to pay for quality. I hence exemplify a so far overlooked demand-driven rationale for innovation by incumbents. I am then also able to analyze the impact of inequality both on long-term growth and on the allocation of R&D activities between challengers and incumbents. I find that redistributive policies generally lead to an increase in the long-run growth rate, and to variations in the share of the overall R&D expenditures being undertaken by incumbents. |
| Keywords: | Growth, Innovation, Income inequality, Multi-Product firms |
| JEL: | O3 O4 F4 |
| Date: | 2013–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2013004&r=com |
| By: | Philippe Aghion; Peter Howitt; Susanne Prantl |
| Abstract: | Can patent protection and product market competition complement each other in enhancing incentives to innovate? In this paper, we address this question by investigating how innovation responses to a substantial policy initiative increasing product market competition interact with the strength of patent rights. We provide empirical evidence of innovation responding positively to the product market reform in industries of countries where patent rights are strong, not where these are weak. The positive response to the reform is more pronounced in industries in which innovators rely more on patenting than in other industries, and in which the scope for deterring entry through patenting is not too large. Our empirical findings are in line with step-by-step innovation models predicting that product market competition enhances innovation and, more importantly, that patent protection can complement competition in inducing innovation. |
| JEL: | L1 L5 O3 O4 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18854&r=com |
| By: | Gans , Joshua (Rotman School of Management); Persson, Lars (Institutet för näringslivsforskning) |
| Abstract: | This paper examines the interaction between intellectual property protection and competition policy on the choice of entrepreneurs with respect to commercialization as well as the rate of innovation. We find that stronger intellectual property protection makes it more likely that entrepreneurs will commercialize by cooperating with incumbents rather than competing with them. Consequently, we demonstrate that competition policy has a clearer role in promoting a higher rate of innovation in that event. Hence, we identify one reason why the strength of the two policies may be complements from the perspective of increasing the rate of entrepreneurial innovation. |
| Keywords: | Entrepreneurs; innovation; commercialization; intellectual property law; competition law |
| JEL: | O31 |
| Date: | 2013–08–09 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:entfor:2012_016&r=com |
| By: | Sabien Dobbelaere (VU University Amsterdam, IZA Bonn); Kozo Kiyota (Yokohama National University, RIETI); Jacques Mairesse (CREST (ParisTech-ENSAE), UNU-MERIT (Maastricht University), NBER) |
| Abstract: | Allowing for three labor market settings (perfect competition or right-to-manage bargaining, efficient bargaining and monopsony), this paper relies on an extension of Hall's econometric framework for estimating simultaneously price-cost margins and scale economies. Using an unbalanced panel of 17,653 firms over the period 1986-2001 in France, 8,725 firms over the period 1994-2006 in Japan and 7,828 firms over the period 1993-2008 in the Netherlands, we first apply two procedures to classify 30 comparable manufacturing industries in 6 distinct regimes that differ in terms of the type of competition prevailing in product and labor markets. For each of the three predominant regimes in each country, we then investigate industry differences in the estimated product and labor market imperfections and scale economies. We find important regime differences across the three countries and also observe differences in the levels of product and labor market imperfection s and scale economies within regimes. |
| Keywords: | Rent sharing; monopsony; price-cost mark-ups; production function; panel data |
| JEL: | C23 D21 J50 L13 |
| Date: | 2013–03–04 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20130037&r=com |
| By: | Dhaval M. Dave |
| Abstract: | This review discusses the role of consumer-directed and physician-directed promotion in the pharmaceutical market, based on the classic conceptual framework of whether such promotion is “persuasive” and/or “informative”. Implications for public health and welfare partly depend on whether, and to what extent, advertising: 1) raises “selective” or brand-specific demand versus “primary” or industry-wide demand; 2) impacts drug costs; and 3) impacts competition. Empirical evidence from the literature bearing on these effects is surveyed. These studies show that pharmaceutical promotion has both informative and persuasive elements. Consumer advertising is more effective at enlarging the market, educating consumers, inducing physician contact, expanding drug treatment, and promoting adherence among existing users. Physician advertising is primarily persuasive in nature, effectively increasing selective brand demand. Evidence bearing on the effects of promotion on competition and prices is more limited. However, there is no strong evidence that drug promotion deters entry, and there is some suggestive evidence that it may even be mildly pro-competitive. With respect to costs, some studies suggests that consumer advertising may weakly raise the average wholesale price, which is a manufacturer’s list price, but there is no strong indication that either consumer- or provider-directed promotion substantially raises retail-level prices. However, this is not to imply that potential promotion-driven substitution from non-advertised to advertised drugs cannot have effects on total drug costs. While most of these effects point to potential welfare improvements as a result of pharmaceutical promotion, there is also evidence that consumer ads may induce overuse and overtreatment in certain cases. Market expansion, overtreatment and shifting brands for non-therapeutic reasons further raise the concern of a sub-optimal patient-drug match at least for some marginal patients. A comprehensive evaluation of the welfare effects of pharmaceutical promotion requires a balanced assessment of these benefits and costs. |
| JEL: | D22 I0 I11 I12 I18 M3 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18830&r=com |
| By: | Gautam Gowrisankaran; Aviv Nevo; Robert Town |
| Abstract: | In healthcare and other bilateral oligopoly markets, prices are often negotiated by the contracting parties. Many hospitals have merged in recent years in part to gain bargaining leverage with managed care organizations (MCOs), leading to several antitrust trials. We specify and estimate a bargaining model of competition between hospitals and MCOs using claims and discharge data from Northern Virginia. We find that MCO bargaining restrains hospital prices significantly relative to standard insurance. Increasing patient coinsurance tenfold would reduce prices by 16%. A proposed hospital acquisition that was challenged by the Federal Trade Commission would have significantly raised hospital prices. |
| JEL: | I11 I18 L11 L13 L31 L38 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18875&r=com |
| By: | Enrico Beretta (Bank of Italy); Silvia Del Prete (Bank of Italy) |
| Abstract: | Using data on single credit relationships, the paper shows that after a merger or an acquisition, involving two or more banks which had previously jointly financed the same firm, the share of credit granted to the client by the consolidated intermediaries moderately decreases over three years. This does not necessarily imply a reduction of the overall credit granted to the firm, because after consolidations involving its lending banks, the probability of diversifying the mix of lenders increases. Some of the features of credit relationships or the characteristics of borrowing firms, which reduce information asymmetries and the cost of soft information, seem to partially offset the decrease in the share of credit provided by consolidated banks. Indeed, if the company is geographically close to a branch of its financing bank, or if it belongs to an industrial district, the more exclusive credit relationships between the parties seem to mitigate or offset the diversification of credit relationships generated by M&As. By contrast, if a firm is in financial distress or located in the South of Italy – a geographical area with greater negative context externalities – diversification is significantly enhanced. |
| Keywords: | relationship banking, mergers and acquisitions, firms’ agglomerations |
| JEL: | G21 G34 L14 L22 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_901_13&r=com |
| By: | Pittman, Russell; Choi, Sunghee |
| Abstract: | South Korea, like many countries, is engaged in a policy debate concerning possible railways reforms. However, unlike most countries, here the focus of discussion has been the government’s proposal to open high-speed passenger train lines to a second train company that would supply on-track competition to KTX trains. While such a policy may indeed lead to lower fares and greater efficiency, worldwide experience casts doubt on the government’s hope that it would lead to such dramatic increases in ridership that the level of subsidies to the overall rail system could be reduced. We argue that a more promising reform strategy may be to introduce competition into freight rail. Based on the Latin American experience, creating independent, vertically integrated, competing freight railway companies could be expected not only to lower shipper rates and increase efficiency but also to raise considerable revenues from the private sector in franchising fees and new investments. |
| Keywords: | railways, restructuring, competition, South Korea |
| JEL: | L9 L92 O1 O18 R4 R48 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:44992&r=com |
| By: | Cremer, Helmuth (TSE, IDEI); Maldonado, Dario (University Bogota) |
| Abstract: | This paper studies oligopolistic competition in education markets when schools can be private and public and when the quality of education depends on "peer group"effects. In the first stage of our game schools set their quality and in the second stage they fix their tuition fees. We examine how the (subgame perfect Nash) equilibrium allocation (qualities, tuition fees and welfare) is affected by the presence of public schools and by their relative position in the quality range. When there are no peer group effects, efficiency is achieved when (at least) all but one school are public. In particular in the two school case, the impact of a public school is spectacular as we go from a setting of extreme differentiation to an efficient allocation. However, in the three school case, a single public school will lower welfare compared to the private equilibrium. We then introduce a peer group effect which, for any given school is determined by its student with the highest ability. These PGE do have a significant impact on the results. The mixed equilibrium is now never efficient. However, welfare continues to be improved if all but one school are public. Overall, the presence of PGE reduces the effectiveness of public schools as regulatory tool in an otherwise private education sector. |
| Keywords: | Education, peer-group effects, mixed duopoly |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:26910&r=com |
| By: | Kervel, V.L. van (Tilburg University) |
| Abstract: | This doctoral thesis focuses on two topics on trading in financial markets: competition between stock exchanges and optimal trading strategies. Chapter one analyzes the effect on the liquidity of a stock when it is traded on multiple trading venues, and distinguishes between competition from transparent and opaque venues. Chapter two demonstrates a strong interaction between the supply and demand of trading activity across trading venues. Chapter three focuses on the optimal strategy to trade a large amount of shares before a deadline. It studies the information asymmetry between informed and uninformed traders, and finds that splitting the large quantity into smaller parts may resolve this friction. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:ner:tilbur:urn:nbn:nl:ui:12-5663709&r=com |
| By: | Justine S. Hastings; Ali Hortaçsu; Chad Syverson |
| Abstract: | This paper examines how advertising impacts competition and equilibrium prices in the context of a privatized pension market. We use detailed administrative data on fund manager choices and worker characteristics at the inception of Mexico’s privatized social security system, where fund managers had to set prices (management fees) at the national level, but could select sales force levels by local geographic areas. We develop a model of fund manager choice, price and advertising competition (in terms of sales force deployment), nesting models of informative and persuasive advertising. We find evidence in favor of the persuasive view; exposure to sales force lowered price sensitivity and increased brand loyalty, leading to inelastic demand and high equilibrium fees. We simulate oft-proposed policy solutions: a supply-side policy with a competitive government player, and a demand-side policy which increases price elasticity. We find that demand-side policies are necessary to foster competition in social-safety-net markets with large segments of inelastic consumers. |
| JEL: | D14 D18 G11 L20 L21 L51 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18881&r=com |
| By: | Sami Debbichi (AEDD - Analyse Economique et Développement Durable - Université de Tunis El Manar); Walid Hichri (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon) |
| Abstract: | We present a Cournot model that compares the critical threshold of collusion in Duopoly and Oligopoly Markets where the actors are private, mixed or public. We assume that the incentive critical threshold for collusion depends on the interconnection fees. The different threshold values calculated in each Market structure are then estimated, using the OLS method, with variables related to the Tunisian market structures and prices. The Econometric estimation of the different threshold values is consistent with our theoretical results. Our findings can be used by the decision makers to control collusion, by acting on the level of interconnection fees for each market structure and by implementing the suitable market liberalization policies in this sector. |
| Keywords: | Interconnexion fees; Collusion; Market Structure; Private sector; Public Sector; Tunisian Mobile Market |
| Date: | 2013–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00794286&r=com |
| By: | Bollino, Carlo Andrea; Ciferri, Davide; Polinori, Paolo |
| Abstract: | In this paper we investigate wholesale electricity prices integration process in the main European markets. After reforms introduced in the last decades in Europe, wholesale electricity prices are now determined in regulated markets. However, while market institutional frameworks show several similarities, there are still differences in fuel mix, generation units technologies, market structure. Using multivariate cointegration techniques we test integration dynamics within four European markets (Austria, Germany, France and Italy) for which we have collected a novel dataset of spot prices from 2004 to 2010. We provide evidence that German market constitutes a common stochastic trend driving the long-run behavior of other markets. Our results are robust to causality test, to Granger causality test, to oil price relevance test and provide additional evidence to assess the efficient market hypothesis in European electricity markets. |
| Keywords: | European electricity markets, electricity spot prices, cointegration, structural MA representation. |
| JEL: | C32 L16 Q41 |
| Date: | 2013–01–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:44704&r=com |