Market power and heterogeneous pass-through in German electricity retail

Duso, Tomaso and Szücs, Florian (2017) Market power and heterogeneous pass-through in German electricity retail. European Economic Review, 98. pp. 354-372. ISSN 0014-2921


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We analyze the pass-through of cost changes to retail tariffs in the German electricity market over the 2007-2014 period. We find an average pass-through rate of around 60%. This significantly varies with demand factors: while the pass-through rate to baseline tariffs, where firms have greater market power because customers are less willing to switch, 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 and reduce pass-through 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.

Item Type: Article
Additional Information: This paper is based on a study conducted on behalf of the Directorate General Competition of the European Commission. We thank Elena Argentesi, Albert Banal-Estañol, Walter Beckert, Anette Boom, Adriaan Dierx, Germain Gaudin, Klaus Gugler, Justus Haucap, Sven Heim, Fabienne Ilkovitz, John Kwoka, Mario Liebensteiner, Axel Ockenfels, Peter Ormosi, Julia Rechlitz, Luis-Manuel Schultz, Jo Seldeslachts, Jens Südekum, Catherine Waddams, Gregory J. Werden, and seminar participants at CBS, DICE Düsseldorf, WU Vienna, and DIW Berlin for their valuable comments. The comments of the associate editor and two anonymous referees greatly improved the paper. Ivan Mitkov provided excellent assistance during the data collection. Tomaso Duso gratefully acknowledges support from the Berlin Centre for Consumer Policies (BCCP).
Keywords: pass-through / electricity retail / market power / Germany
Classification Codes: JEL D4, LE, Q4
Divisions: Departments > Volkswirtschaft
Departments > Volkswirtschaft > Quantitative Volkswirtschaftslehre
Version of the Document: Accepted for Publication
Variance from Published Version: Typographical
Depositing User: Elena Simukovic
Date Deposited: 05 Sep 2017 16:57
Last Modified: 04 Aug 2020 04:27
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