Sequential Markets, Market Power and Arbitrage
We develop a theoretical framework to characterize strategic behavior in sequential markets under imperfect competition and limited arbitrage. Our theory predicts that these two elements can generate a systematic price premium. We test the model predictions using micro-data from the Iberian electricity market. We show that the observed price differences and firm behavior are consistent with the model. Finally, we quantify the welfare effects of arbitrage using a structural model. In our setting, we show that full arbitrage is not necessarily welfare-enhancing in the presence of market power, reducing consumer costs but decreasing productive efficiency.
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Copy CitationKoichiro Ito and Mar Reguant, "Sequential Markets, Market Power and Arbitrage," NBER Working Paper 20782 (2014), https://doi.org/10.3386/w20782.Download Citation
Published Versions
Koichiro Ito & Mar Reguant, 2016. "Sequential Markets, Market Power, and Arbitrage," American Economic Review, American Economic Association, vol. 106(7), pages 1921-57, July. citation courtesy of 
Koichiro Ito & Mar Reguant, 2016. "Sequential Markets, Market Power, and Arbitrage," American Economic Review, vol 106(7), pages 1921-1957.
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