Resource title

Asymmetric Price Transmission in Supply Function Equilibrium, Carbon Prices and the German Electricity Spot Market

Resource image

image for OpenScout resource :: Asymmetric Price Transmission in Supply Function Equilibrium, Carbon Prices and the German Electricity Spot Market

Resource description

In January 2007, first evidence of an asymmetric pass-through of CO2 emission allowance prices was reported for the German electricity spot market. This paper explores the theoretical basis for such an asymmetry in the context of a supply function bidding duopoly. It interprets fluctuating carbon prices as a coordination mechanism for tacitly colluding firms and studies incentive compatibility in the repeated game. It is new in its attempt to model asymmetric behaviour in a spot market without relevant frictions, and gives a reasoning why the asymmetry shows up for emission allowances only. The paper concludes with a theorem: that asymmetric price transmission is sustained up to a certain maximum level which might include the monopoly solution and that this mechanism is always preferred to non-cooperation.

Resource author

Nikolas W├Âlfing

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/24736

Resource license

Adapt according to the presented license agreement and reference the original author.