Working Paper No. 1193

Market Power and Forward Prices

Published: November 29, 2017Pages: 8Keywords: Forward pricing; Electricity markets; Market power; ArbitrageJEL-codes: D43; G13; L12; L13; Q41

Market Power and Forward Prices Keith Ruddell, Tony Downward and Andy Philpott


We construct a model of strategic behavior in sequential markets which exhibits a persistent forward price premium. On the spot market, producers wield market power while purchasers are price takers.

Producers with forward commitments have less incentive to raise prices on the spot market. Purchasers are thus willing to pay a premium to producers for forward contracts.

We argue that this type of forward premium is not susceptible to arbitrage by speculators on the forward market, since purchasers prefer forward contracts backed by producers.

Interdisciplinary European Studies

The European Union and the Return of the Nation State

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This book explores the complex and ever-changing relationship between the European Union and its member states. The recent surge in tension in this relationship has been prompted by the actions of some member state governments as they question fundamental EU values and principles and refuse to implement common decisions seemingly on the basis of narrowly defined national interests.

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