Do Generation Companies Disguise Strategic Withholding as Reported Production Failures?

Sara Fogelberg and Ewa Lazarczyk apply a quasi-experimental design and use data from the Swedish energy market to examine whether generation companies use reported production failures to disguise strategic reductions of capacity with the purpose of influencing prices. In a market without strategic withholding, the decision to report a failure should be independent of the market price. This paper shows that marginal producers in fact base their decision on prices as well, a result which indicates that failure reports are a result of economic incentives and not only technical problems.