Electricity prices and cross-border trade: volume and strategy effects

Parisio, Lucia and Bosco, Bruno (2006): Electricity prices and cross-border trade: volume and strategy effects.

Abstract

In this paper we derive equilibrium bid functions in isolated domestic electricity markets and then analyse their modifications when cross-border trade among them is managed using the implicit auction method. We show that cross-border trade can induce price convergence across countries and thereby reallocate gains and losses as a result of two concomitant effects: a “volume” effect due to the mere increase/decrease of demand and supply in each market and a “bid effect” due to the modifications of bid functions brought about by interconnection. The latter effect can either contrast or reinforce the former. We derive conditions affecting the net result.

• Item Type: MPRA Paper
• Language: English
• Keywords: Electricity markets; implicit auctions; cross-border trade
• Subjects: L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L94 - Electric Utilities; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D44 - Auctions

References

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