Empirical Economics

, Volume 54, Issue 3, pp 1353–1387 | Cite as

Strategic decisions on bilateral bidding behavior: evidence from a wholesale electricity market

  • Victor F. Moutinho
  • António C. Moreira
  • João Paulo C. Bento
Article
  • 95 Downloads

Abstract

This article analyzes the strategic bilateral bidding behavior in the Spanish electricity wholesale market (OMEL). The collection of data includes information regarding weekly averages of spot prices, the quantity bid in the wholesale market, the quantities purchased in the wholesale market and sold in the open market, and the behavior of conduct parameters for the period from January 2002 to April 2007 for the four largest firms of the Spanish electricity market: Endesa, Iberdrola, Unión Fenosa and Hidrocantábrico. This article employs the New Empirical Industrial Organization approach. The empirical analysis was based on the autoregressive distributed lag approach to cointegration and on the Toda–Yamamoto Granger causality tests to validate the standard version of the theoretical formulation of the standard Cournot model, and its theoretical extension, to encompass the hypothesis of the presence of bid interdependence for electricity quantities sold and bought in the Spanish electricity wholesale market. The results of cointegration and causality analysis reinforce the empirical results of the extended Cournot model with the inclusion of the two main bidding variables that solved the optimization problem of profit maximization for each of the four firms analyzed.

Keywords

Bidding behavior Electricity spot market Spain Cointegration Toda–Yamamoto Granger causality 

JEL Classification

L13 D22 

Notes

Acknowledgements

The authors would like to thank the reviewers for their valuable comments and suggestions. The authors are grateful to Mario Pelagatti for providing the computer code in R to compute the robust KPSS test. The code contains two R functions for the robust version of the KPSS test by modifying the functions of the tseries and urca libraries. The two libraries use different default methods for computing the bandwidth, but urca let us set the bandwidth manually.

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Copyright information

© Springer-Verlag GmbH Germany 2017

Authors and Affiliations

  • Victor F. Moutinho
    • 1
  • António C. Moreira
    • 1
  • João Paulo C. Bento
    • 1
  1. 1.GOVCOPP, Department of Economics, Management, Industrial Engineering and TourismUniversity of AveiroAveiroPortugal

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