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Market Power and Heterogeneous Pass-through in German Electricity Retail

Author

Listed:
  • Tomaso Duso
  • Florian Szücs
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.

Suggested Citation

  • Tomaso Duso & Florian Szücs, 2016. "Market Power and Heterogeneous Pass-through in German Electricity Retail," Discussion Papers of DIW Berlin 1614, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1614
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    References listed on IDEAS

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    More about this item

    Keywords

    Electricity retail; pass-through; Germany;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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