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Research Institute of Industrial Economics (IFN) Working Paper Series

No 1015:
Strategic Withholding through Production Failures

Sara Fogelberg () and Ewa Lazarczyk ()

Abstract: Anecdotal evidence indicates that electricity producers use production failures to disguise strategic reductions of capacity in order to influence prices, but systematic evidence is lacking. We use a quasi-experimental set up and data from the Swedish energy market to examine such behavior. In a market without strategic withholding, the decision of reporting a failure should be independent of the market price. We show that marginal producers in fact base their decision to report a failure in part on prices, which indicates that failures are a result of economic incentives as well as of technical problems.

Keywords: Electricity markets; Urgent Market Messages (UMMs); Unplanned failures; (follow links to similar papers)

JEL-Codes: L49; L94; (follow links to similar papers)

31 pages, March 31, 2014

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