Munich Personal RePEc Archive

Strategic Reneging in Sequential Imperfect Markets

Benatia, David and Billette de Villemeur, Etienne (2019): Strategic Reneging in Sequential Imperfect Markets.

[img]
Preview
PDF
MPRA_paper_105280.pdf

Download (699kB) | Preview

Abstract

This paper investigates the incentives to manipulate sequential markets by strategically reneging on forward commitments. We first study the behavior of a dominant firm in a two-period model with demand uncertainty. Our results show that sequential markets may be a source of inefficiencies. We then test the model’s predictions using occurrences of reneging on long-term commitments in Alberta’s electricity market. We implement a machine learning approach to identify and evaluate manipulations. We find that a dominant supplier increased its revenues by $35 million during the winter of 2010-11, causing Alberta’s electricity procurement costs to increase by above $330 million (20%).

Logo of the University Library LMU Munich
MPRA is a RePEc service hosted by
the University Library LMU Munich in Germany.