Price Spikes in Energy Markets: “Business by Usual Methods” or Strategic Withholding? |
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Authors: | John Kwoka Vladlena Sabodash |
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Institution: | (1) Department of Economics, Northwestern University, 2001 Sheridan Road, Evanston, 60208, IL, USA;(2) Interdisciplinary Center for Economic Science, George Mason University, 4400 University Drive, MSN IB2, Fairfax, 22030-4444, VA, USA |
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Abstract: | There is considerable controversy whether price spikes in energy markets represent demand shifts in the presence of inelastic
supply or strategic withholding by suppliers. This paper sets out a new method for distinguishing the two possible explanations,
namely, determining whether supply shifts to the left during periods of high demand. Such behavior would be inconsistent with
ordinary profit-maximization, that is, “business by usual methods.” This approach is applied to a period of unusually high
prices in the New York wholesale electricity market in 2001. There is evidence of strategic withholding for one brief period. |
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