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ISSN 2385-2275 No. 20 - December 2015

Bayesian SUR Heteroskedastic Model for Demand Elasticity Analysis in the Italian Wholesale Electricity Market

Maria Chiara D'ERRICO
University of Perugia, Department of Economics, Perugia, Italy

Abstract:

The Italian electricity sector undertook a deregulation process starting
in the 2004 that has led to overcome the system of vertically
integrated monopoly. This process led to the institution of Power
Exchange (IPEX). The transition had not been simple since the definition
of a proper market structure preserving competition is not an
immediate task. In this context, the information provided by demand
elasticity have to be exploited since the elasticity is strictly linked
with the market power measured on the supply side. The work want
to investigate what is the extent of buyer’s elasticity and if buyers can
change their consumption profiles within the day given the rational
expectation of change in price. The research use a Bayesian approach
applying a heteroskedastic SUR regression Model.

JEL Classification: D43

Keywords: Demand Elasticity; Bayesian Estimation; Electricity Markets

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