Market Power and Heterogeneous Pass-Through in German Electricity Retail

30 Pages Posted: 8 Nov 2016

See all articles by Tomaso Duso

Tomaso Duso

German Institute for Economic Research (DIW Berlin); TU Berlin- Faculty of Economics and Management - Empirical Industrial Organization

Florian Szücs

Vienna University of Economics and Business

Date Written: October 26, 2016

Abstract

We analyze the pass-through of cost changes to retail tariffs in the German electricity market over the 2007 to 2014 period. We find an average pass-through rate of around 60%, which significantly varies with demand factors: while the pass-through rate to baseline tariffs, where firms have higher market power, is only 50%, it increases to 70% in the competitive segment of the market. Although the pass-through rate of independent firms is significantly higher than that of other firms in the competitive market segment, the extent of supply-side heterogeneity is limited. Thus, the firms’ ability to exercise market power appears to be constrained by competition and largely determined by demand side factors. Finally, we find that the pass-through rate in the competitive market segment has been approaching unity over the past years, indicating a rise in competitive pressure.

Keywords: electricity retail, pass-through, Germany

JEL Classification: C23, D22, D43, L13, L94, Q41

Suggested Citation

Duso, Tomaso and Szücs, Florian, Market Power and Heterogeneous Pass-Through in German Electricity Retail (October 26, 2016). DIW Berlin Discussion Paper No. 1614. Available at SSRN: https://ssrn.com/abstract=2866331 or http://dx.doi.org/10.2139/ssrn.2866331

Tomaso Duso (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

TU Berlin- Faculty of Economics and Management - Empirical Industrial Organization ( email )

Berlin, 10585
Germany

Florian Szücs

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

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