We analyze the pattern of pool prices in the Spanish electricity market duringt 1998 by means of a Time Varying Transition Probabilities Markov switching model. Our purpose is two-fold: firstly, to identify and date the drops in prices that cannot be accounted for by supply nor demand conditions; and secondly, under the assumption that these correspond with reversions to non-cooperative behavior, to identify the trigger variables upon which a collusive equilibrium could be based upon. Our results confirm the hypothesis that two distinct price levels characterize the time series of pool prices, and point to the conclusion that price wars are induced by changes in the major generators' market shares. In turn, this shows that firms' pricing behavior is highly in uenced by the way in which the so-called Competition Transition Charges (CTCs) are computed.
 
Keywords: Electricity Markets, Tacit Collusion, Markov Switching.
JEL Classification: C22, L13, L94.