Price Spikes in Energy Markets: "Business by Usual Methods" or Strategic Withholding?

John Kwoka, Vladlena Sabodash
2011 Review of Industrial Organization  
There is considerable controversy whether price spikes in energy markets represent demand shifts in the presence of inelastic supply or strategic withholding by suppliers. This paper sets out a new method for distinguishing the two possible explanations, namely, determining whether supply shifts to the left during periods of high demand. Such behavior would be inconsistent with ordinary profit-maximization, that is, "business by usual methods." This approach is applied to a period of unusually
more » ... igh prices in the New York wholesale electricity market in 2001. There is evidence of strategic withholding for one brief period.
doi:10.1007/s11151-011-9294-8 fatcat:ibzi3px6gfdy7psmurqzes6mvq