"Price Exposure and Market Power: Learning from Changes in Renewables Regulation"
We explore the impact of exposing firms to market prices on market performance, taking into account two countervailing incentives. On the one hand, increasing price exposure enhances firms' incentives to exercise market power. On the other, it also enhances their incentives to arbitrage, which ultimately weakens market power. We test this trade-off using detailed bid data from the Spanish electricity market, where regulation switched back and forth from exposing renewables to fixed prices (Feed-in-Tariffs) or to market prices (Feed-in-Premiums).Overall, we find that reducing firms' price exposure through Feed-in-Tariffs contributed to weakening the dominant firms' market power, even though it reduced price arbitrage.
Please note that lunch will be provided upon registration only.