The Practitioner Scholar

Doctor of Management Blog

Eric Woychik Finds Enron’s Trading Practices Result from too Much Market Certainty

August 31, 2010 ·

According to the classic view of market competition, if all participants in the market had perfect information, prices would naturally be forced downward by those market participants. However, Enron traders and their ilk had virtually perfect information about their market and about the actions of other traders.  The result was collusion, gaming, and artificially inflated market prices.  In many ways, what happened was the opposite of what was supposed to happen according to the classical view.

In an extraordinary example of practitioner scholarship, Eric Woychik (DM 2006) drew upon the work of Nobel Laureate Robert Aumann in his analysis of Enron's trading practices.  In his analysis, Dr. Woychik combined quantitative and qualitative forms of data analysis which included previously unreleased internal documents and emails.  His overarching finding is that it is precisely because of the widespread, near-perfect information available to traders that tacit collusion and market gaming occurred to artificially drive up prices.  Dr. Woychik argues that solutions that introduce greater uncertainty to the trading environment - such as strategies to reflect actual demand - would do more to drive down costs than perfect information or unwieldy levels of oversight.

Dr. Woychik has been actively involved with the electric industry for over three decades and has published research in each of those decades about trading practices.  He is currently exploring electric industry reform policies, including future electric industry policies and regulation, particularly to enable clean energy and smart grid resources to be used comparably with traditional fossil energy sources.  He is contributing to a forthcoming book, Smart Grids: Infrastructure, Technology, and Solutions, Stuart Borlase, Editor (CRC Press), and is an ongoing speaker, expert witness, and conference participant.

Dr. Woychik is Managing Director, Strategy Practice, and Electric Industry Lead for Black & Veatch Corporation's Management Consulting Division. He was previously Vice President and Senior Director of Development for Comverge, Inc., and for many years was the President and founder of Strategy Integration, LLC.  Over the last 30 years he has working with a wide variety of stakeholder interests in 20 countries and for more than 50 utilities in North America on electricity markets, regulation, and demand-side technologies. In addition to his DM from Weatherhead, Dr. Woychik holds a B.S. in Environmental Planning and Policy Analysis from U.C. Davis, and an M.S. in Economics from New Mexico State University.

Tags: DM Profiles · DM Research

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