Does Strategic Ability Affect Efficiency? Evidence from Electricity Markets

• 成果类型: Article
• 署名作者: Hortacsu, Ali; Luco, Fernando; Puller, Steven L.; Zhu, Dongni
• 署名单位: University of Chicago; National Bureau of Economic Research; Texas A&M University System; Texas A&M University College Station; Shanghai University of Finance & Economics
• 刊物名称: AMERICAN ECONOMIC REVIEW
• ISSN/ISSBN: 0002-8282
• DOI: 10.1257/aer.20172015
• 发表日期: 2019
• 页码: 4302-4342
• 关键词: Auctions; games; POWER

摘要

Oligopoly models of price competition predict that strategic firms exercise market power and generate inefficiencies. However, heterogeneity in firms' strategic ability also generates inefficiencies. We study the Texas electricity market where firms exhibit significant heterogeneity in how they deviate from Nash equilibrium bidding. These deviations, in turn, increase the cost of production. To explain this heterogeneity, we embed a cognitive hierarchy model into a structural model of bidding and estimate firms' strategic sophistication. We find that firm size and manager education affect sophistication. Using the model, we show that mergers which increase sophistication can increase efficiency despite increasing market concentration.