Strategic Reneging in Sequential Imperfect Markets

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

Abstract

This paper investigates the incentives to manipulate sequential markets by strategically reneging on forward commitments. We first study the behaviour 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 use the model’s predictions to investigate occurrences of reneging on long-term commitments in Alberta’s electricity market. We develop a machine learning approach to 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%).

• Item Type: MPRA Paper
• Language: English
• Keywords: Imperfect Commitment; Market Manipulation; MarketPower; Electricity Markets
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L12 - Monopoly ; Monopolization Strategies; L - Industrial Organization > L5 - Regulation and Industrial Policy > L51 - Economics of Regulation; L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L94 - Electric Utilities

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