Investment Incentives and Electricity Spot Market Competition

Grimm V, Zöttl G (2013)

Publication Language: English

Publication Type: Journal article

Publication year: 2013


Publisher: Wiley-Blackwell

Book Volume: 22

Pages Range: 832-851

Journal Issue: 4

DOI: 10.1111/jems.12029


In this paper we analyze investment decisions of strategic firms that anticipate competition on
many consecutive spot markets with fluctuating (and possibly uncertain) demand.We study how
the degree of spot market competition affects investment incentives and welfare and provide an
application of the model to electricity market data. We show that more competitive spot market
prices strictly decrease investment incentives of strategic firms. The effect can be severe enough
to even offset the beneficial impact of more competitive spot markets on social welfare. Our
results obtain with and without free entry. The analysis demonstrates that investment incentives
necessarily have to be taken into account for a serious assessment of electricity spot market design.

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Grimm, V., & Zöttl, G. (2013). Investment Incentives and Electricity Spot Market Competition. Journal of Economics & Management Strategy, 22(4), 832-851.


Grimm, Veronika, and Gregor Zöttl. "Investment Incentives and Electricity Spot Market Competition." Journal of Economics & Management Strategy 22.4 (2013): 832-851.

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