Working Paper No. 1015

Strategic Withholding through Production Failures

Published: March 31, 2014Pages: 31Keywords: Electricity markets; Urgent Market Messages (UMMs); Unplanned failuresJEL-codes: L49; L94

Strategic Withholding through Production Failures Sara Fogelberg and Ewa Lazarczyk


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.

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Martin Ljunge, IFN, is the author of a chapter, "Trust promotes health: addressing reverse causality by studying children of immigrants", in a new book edited by Sherman Folland and Eric Nauenberg. The cutting edge of research is presented, covering the ever-expanding social capital field.

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