Bruno Bosco

Market Power and the Power Market: Multi-Unit Bidding and (In)Efficiency in Electricity Auctions

In this paper we apply auction theory to the modelling of competition in a multi-unit wholesale electricity market. Bidding strategies of multi-plant producers are derived and examined assuming various degrees of market concentration. Unlike previous literature, which mainly focuses on demand uncertainty, we assume both demand and cost uncertainty as well as cost differentials among the two types of generating units considered in the model, namely baseload units and peak units. Results indicate that the System Marginal Price (competitive pricing) rule provides incentives for bid shading on the part of all those generators-units who have a non-null probability of setting the market price. We also show that the extent of the bid shading is positively affected by the differential in the endowments of the baseload generation capacity of multi-plant firms. The inefficiency of the resulting allocation is also examined and some policy implications are briefly discussed.

A Robust Multivariate Long Run Analysis of European Electricity Prices

This paper analyses the interdependencies existing in wholesale European electricity prices. The results of a multivariate long run dynamic analysis of weekly median prices reveal the presence of a strong although not perfect integration among some neighboring markets considered in the sample and the existence of common long-term dynamics of electricity prices and gas prices but not oil prices. The existence of long-term dynamics among gas prices and electricity prices may prove to be important for long-term hedging operations to be conducted even in markets where there are no electricity derivatives.

Deregulated Wholesale Electricity Prices in Italy

In this paper we analyze the time series of daily average prices generated in the Italian electricity market, which started to operate as a Pool in April 2004. The objective is to characterize the high degree of autocorrelation and multiple seasonalities in the electricity prices. We use periodic time series models with GARCH disturbances and leptokurtic distributions and compare their performance with more classical ARMA-GARCH processes. The within-year seasonal variation is modelled using the low frequencies components of physical quantities, which are very regular throughout the sample. Results reveal that much of the variability of the price series is explained by deterministic multiple seasonalities which interact with each other. Periodic AR-GARCH models seem to perform quite well in mimicking the features of the stochastic part of the price process.

Government Effectiveness, Middle Class and Poverty in the EU: A Dynamic Multilevel Analysis

Using the 2008-2011 EU-Statistics on Income and Living Conditions data, we implement a dynamic three-level model to analyze poverty persistence in 26 EU countries. Our aim is to understand why an individual experiencing poverty today is much more likely to experience it again. We innovate with respect to the existing literature by disentangling the effects of observed and unobserved heterogeneity at country level on the process that may generate poverty persistence. In particular, after controlling for socio-economic factors, including those related to qualitative and quantitative indicators of the welfare state, we analyze for the first time how the size of the middle class in each country affects current individual risk of poverty and its dynamics. Our findings show that the risk of poverty is negatively related to the quality of government activity to social expenditure and to the size of the middle class. Similarly, we show that the impact of past records on current poverty levels may be stronger (weaker) when institutional quality is low (high). This also indicates that good institutions and satisfactory social expenditure may help reducing the adverse current and future impact of experiencing poverty for any level of per capita income and middle class size. Policy implications are also discussed.

Optimal pricing behavior of vertically integrated utilities: Theory and evidence from the Italian electricity wholesale market

In this paper we present a model of supply prices coordination in electricity markets in which a group of firms is vertically integrated. We show that vertical integration, i.e. the presence of a supplier and a buyer belonging to the same coordinated group, represents an obstacle to the full exploitation of market power on the part of generators. This empirical evidence is still in search of a theoretical explanation and this paper contributes to the existing literature by offering both a theoretical discussion and an empirical investigation. The latter is conducted using Italian electricity auction data and shows that bid prices of generators are significantly affected (i.e. moderated) by variables incorporating vertical integration into the econometric model. This is what we call the counterspeculation effect of vertical integration. Italian empirical estimations confirm the presence of this effect and give information about its magnitude and significance.

Price capping in partially monopolistic electricity markets

In this paper we consider an oligopolistic market in which one firm can be monopolist on her residual demand function and derive implications on the shape of her profit function, which we show may not be concave in price. We propose a simple price-capping rule that induce the pivotal operator to compete for quantity instead of taking advantage of her monopoly. Then, we analyze the bidding behaviour of the dominant electricity producer operating in the Italian wholesale power market (IPEX). This firm is vertically integrated and in many instances she acts as a monopolist on the residual demand. We find that, contrary to expectations, this pivotal firm refrains to exploit totally her unilateral market power and, therefore, bids at levels well below the cap. We discuss such a behaviour and derive implications for the setting of the price cap.