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The effect of regulatory scrutiny: Asymmetric cost pass-through in power wholesale and its end

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Abstract

We find an asymmetric pass-through of European emission allowance (EUA) prices to wholesale electricity prices in Germany and show that this asymmetry disappeared in response to a report on investigations by the competition authority. The asymmetric pricing pattern, however, was not detected at the time of the report, nor had it been part of the investigations. Our results therefore provide evidence for the deterring effect of regulatory monitoring on firms which exhibit non-competitive pricing behavior. We do not find any asymmetric pass-through of EUA prices in recent years. Several robustness checks support our results.

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Notes

  1. Personal interview from May 16, 2012, with Jörg Rothermel, division manager Energy, Climate Protection and Resources, Verband der Chemischen Industrie e.V., Frankfurt.

  2. EEX price data for natural gas with delivery in Germany has only been available since 2008 and is thus not applicable to our research.

  3. The test regression includes an intercept.

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Acknowledgments

We are grateful for valuable comments from Anna Créti, the participants of the EAERE annual conference 2013, the editor, and an anonymous referee. We thank Anna-Lena Huthmacher for valuable research assistance. Funding was provided from the project “CFI—Climate Change, Financial Markets and Innovation” chaired by Dr. Paschen von Flotow (Sustainable Business Institute—SBI) and supported by the German Ministry for Education and Research. The paper benefited from the discussion with Dr. Paschen von Flotow and Prof. Dr. Dirk Schiereck (Technical University Darmstadt). All remaining errors are those of the authors.

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Authors and Affiliations

  1. Centre for European Economic Research (ZEW), L7, 1, 68161 , Mannheim, Germany

    Frieder Mokinski & Nikolas M. Wölfing

  2. University of Konstanz, Universitätsstr. 10, 78464 , Konstanz, Germany

    Frieder Mokinski

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  1. Frieder Mokinski
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  2. Nikolas M. Wölfing
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Correspondence to Nikolas M. Wölfing.

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Mokinski, F., Wölfing, N.M. The effect of regulatory scrutiny: Asymmetric cost pass-through in power wholesale and its end. J Regul Econ 45, 175–193 (2014). https://doi.org/10.1007/s11149-013-9233-8

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