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

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ZEW Discussion Papers ; No. 08-040

Classification and Topics

• Classification: Wirtschaft ; Asymmetric and Private Information; Mechanism Design ; Stochastic and Dynamic Games; Evolutionary Games; Repeated Games ; Energy: Demand and Supply; Prices ; Oligopoly and Other Imperfect Markets
• Subject: Asymmetric price transmission ; Electricity spot markets ; Emission allowances ; Emissionsrechte ; Preis ; Stromtarif ; Warenbörse ; Wertpapierhandel ; Ökonomischer Anreiz ; Auktionstheorie ; Theorie ; Deutschland

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Wölfing, Nikolas
• Event: Veröffentlichung
• (who): Zentrum für Europäische Wirtschaftsforschung (ZEW)
• (where): Mannheim
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/24736
• Last update: 10.03.2025, 11:43 AM CET