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


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.


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

JEL Classification

L13 D22 



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.


  1. Bärsden G (1989) The estimation of long-run coefficients from error-correction models. Oxf Bull Econ Stat 51(3):345–350Google Scholar
  2. Bettendorf L, Verboven F (2000) Incomplete transmission of coffee bean prices: evidence from the Netherlands. Eur Rev Agric Econ 27(1):1–16CrossRefGoogle Scholar
  3. Borenstein S, Bushnell J (1999) An empirical analysis of the potential for market power in California’s electricity market. J Ind Econ 47(3):285–323CrossRefGoogle Scholar
  4. Bosco B, Parisio L, Pelagatti M, Baldi F (2010) Long run relations in European electricity prices. J Appl Econ 25(5):805–832CrossRefGoogle Scholar
  5. Bresnahan T (1982) The oligopoly solution concept is identified. Econ Lett 10(1–2):87–92CrossRefGoogle Scholar
  6. Ciarreta A, Espinosa MP (2010a) Supply function competition in the Spanish wholesale electricity market. Energy J 31(4):137–158CrossRefGoogle Scholar
  7. Ciarreta A, Espinosa MP (2010b) Market power in the Spanish electricity auction. J Regul Econ 37(1):42–69CrossRefGoogle Scholar
  8. Ciarreta A, Espinosa MP (2012) The impact of regulation on pricing behavior in the Spanish electricity market (2002–2005). Energy Econ 34(6):2039–2045CrossRefGoogle Scholar
  9. Corts KS (1999) Conduct parameters and measurement of market power. J Econom 88(2):227–250CrossRefGoogle Scholar
  10. Deodhar SY, Sheldon IM (1996) Market power in the market for soymeal exports. J Agr Resour Econ 22(1):78–86Google Scholar
  11. Demetrescu M, Hassler U (2005) Effect of neglected deterministic seasonality on unit root tests. Working paper, Goethe-University FrankfurtGoogle Scholar
  12. de Jong RM, Amsler C, Schmidt P (2007) A robust version of the KPSS test based on indicators. J Econom 137(2):311–333CrossRefGoogle Scholar
  13. Dickey DA, Fuller WA (1979) Distributions of the estimators for autoregressive time series with a unit root. J Am Stat Assoc 74(366):427–431CrossRefGoogle Scholar
  14. Dockner EJ (1992) A dynamic theory of conjectural variations. J Ind Econ 40(4):377–395CrossRefGoogle Scholar
  15. Fabra N (2003) Tacit collusion in repeated auctions: uniform versus discriminatory. J Ind Econ 51(3):271–293CrossRefGoogle Scholar
  16. Fabra N (2009) How to allocate forward contracts: the case of electricity markets. Mimeo Universidad Carlos III de Madrid, MadridGoogle Scholar
  17. Fabra N, Toro J (2005) Price wars and collusion in the Spanish electricity market. Int J Ind Organ 23(3–4):155–181CrossRefGoogle Scholar
  18. Furió D, Lucia JJ (2009) Congestion management rules and trading strategies in the Spanish electricity market. Energy Econ 31(1):48–60CrossRefGoogle Scholar
  19. Genesove D, Mullin WP (1998) Testing static oligopoly models: conduct and cost in the sugar industry, 1890–1914. Rand J Econ 29(2):355–377CrossRefGoogle Scholar
  20. Granger CW (1986) Development in the study of cointegrated economic variables. Oxf Bull Econ Stat 48(3):213–228CrossRefGoogle Scholar
  21. Green RJ (1996) Increasing competition in the British electricity spot market. J Ind Econ 44(2):205–216CrossRefGoogle Scholar
  22. Green RJ, Newbery DM (1992) Competition in the British electricity spot market. J Polit Econ 100(5):929–953CrossRefGoogle Scholar
  23. Hjalmarsson E (2000) Nord pool: a power market without market power. Discussion paper no. 28, Gothenburg UniversityGoogle Scholar
  24. Karp L, Perloff JM (1989) Oligopoly in the rice export market. Rev Econ Stat 71(3):462–70CrossRefGoogle Scholar
  25. Karp L, Perloff JM (1993) Open-loop and feedback models of dynamic oligopoly. Int J Ind Organ 11(3):369–389CrossRefGoogle Scholar
  26. Kühn KU, Machado M (2004) Bilateral market power and vertical integration in the Spanish electricity spot market. CEPR discussion papers 4590Google Scholar
  27. Lagarto J, Sousa J, Martins Á (2010) The impact of the Iberian electricity market on the competitive behavior of generating companies using a conjectural variations approach. In: 7th International Conference on the European Energy Market (EEM), 23–25th June, MadridGoogle Scholar
  28. Lagarto J, Sousa J, Martins Á, Ferrão P (2014) Market power analysis in the Iberian electricity market using a conjectural variations model. Energy 76(1):292–305CrossRefGoogle Scholar
  29. Lau LJ (1982) On identifying the degree of competitiveness from industry price and output data. Econ Lett 10(1–2):93–99CrossRefGoogle Scholar
  30. Martin S (2002) Advanced industrial economics. Blackwell Publishing, OxfordGoogle Scholar
  31. Moutinho V, Moreira A, Mota J (2014) Do regulatory mechanisms promote competition and mitigate market power? Evidence from Spanish electricity market. Energ Policy 68:403–412CrossRefGoogle Scholar
  32. Moutinho V, Vieira J, Moreira A (2011) The crucial relationship among energy commodity prices: evidence from the Spanish electricity market. Energ Policy 39(10):5898–5908CrossRefGoogle Scholar
  33. Pelagatti MM, Sen PK (2013) Rank tests for short memory stationarity. J Econom 172:90–105CrossRefGoogle Scholar
  34. Pesaran M, Shin Y, Smith R (2001) Bounds testing approaches to the analysis of level relationships. J Appl Econ 168(3):289–326CrossRefGoogle Scholar
  35. Sexton RJ, Zhang M (2001) An assessment of the impact of food industry market power on U.S. consumers. Agribusiness 17(1):59–79CrossRefGoogle Scholar
  36. Sheldon IM, Sperling R (2003) Estimating the extent of imperfect competition in the food industry: what have we learned? J Agric Econ 54(1):89–109CrossRefGoogle Scholar
  37. Steen F, Salvanes K (1999) Testing for market power using a dynamic oligopoly model. Int J Ind Organ 17(2):147–177CrossRefGoogle Scholar
  38. Toda HY, Yamamoto T (1995) Statistical inference in vector autoregressions with possibly integrated processes. J Econom 66(1–2):225–250CrossRefGoogle Scholar
  39. Wolfram CD (1999) Measuring duopoly power in the British electricity spot market. Am Econ Rev 89(4):805–826CrossRefGoogle Scholar
  40. Zivot E, Andrews D (1992) Further evidence of great crash, the oil price shock and unit root hypothesis. J Bus Econ Stat 10(3):251–270Google Scholar

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

Personalised recommendations