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A Market Power Model with Strategic Interaction in Electricity Networks

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  • William W. Hogan
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    Abstract

    When transmission constraints limit the flow of power in an electric network, there are likely to be strong interaction effects across different parts of the system. A model of imperfect competition with strategic interactions in an electricity transmission network illustrates a possible exercise of market power that differs from the usual analysis of imperfect competition in more familiar product markets. Large firms could exercise horizontal market power by increasing their own production, lowering some prices, and exploiting the necessary feasibility constraints in the network to foreclose competition from others. This behavior depends on the special properties of electric networks, and reinforces the need for market analysis with more realistic network models.

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    Bibliographic Info

    Article provided by International Association for Energy Economics in its journal The Energy Journal.

    Volume (Year): Volume18 (1997)
    Issue (Month): Number 4 ()
    Pages: 107-141

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    Handle: RePEc:aen:journl:1997v18-04-a05

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    Cited by:
    1. Poletti, Steve, 2009. "Government procurement of peak capacity in the New Zealand electricity market," Energy Policy, Elsevier, vol. 37(9), pages 3409-3417, September.
    2. Pepermans, Guido & Willems, Bert, 2010. "Cost Recovery in Congested Electricity Networks," Working Papers 2010/22, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
    3. Førsund, Finn R., 2005. "Hydropower Economics," Memorandum 30/2005, Oslo University, Department of Economics.
    4. Méritet, Sophie, 2003. "L'émergence de pouvoir de marché dans les marchés électriques : le cas des Etats-Unis," Economics Papers from University Paris Dauphine 123456789/206, Paris Dauphine University.
    5. Halseth, Arve, 1999. "Market power in the Nordic electricity market," Utilities Policy, Elsevier, vol. 7(4), pages 259-268, February.
    6. Neuhoff, K., 2003. "Integrating Transmission and Energy Markets Mitigates Market Power," Cambridge Working Papers in Economics 0310, Faculty of Economics, University of Cambridge.
    7. Guido Pepermans & Bert Willems, 2005. "The Potential Impact of Cross-Ownership in Transmission: an Application to the Belgian Electricity Market," Center for Economic Studies - Discussion papers ces0503, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
    8. Ventosa, Mariano & Baillo, Alvaro & Ramos, Andres & Rivier, Michel, 2005. "Electricity market modeling trends," Energy Policy, Elsevier, vol. 33(7), pages 897-913, May.
    9. Twomey, P. & Green, R. & Neuhoff, K. & Newbery, D., 2005. "A Review of the Monitoring of Market Power The Possible Roles of TSOs in Monitoring for Market Power Issues in Congested Transmission Systems," Cambridge Working Papers in Economics 0504, Faculty of Economics, University of Cambridge.
    10. Ramos, Andres & Ventosa, Mariano & Rivier, Michel, 1999. "Modeling competition in electric energy markets by equilibrium constraints," Utilities Policy, Elsevier, vol. 7(4), pages 233-242, February.
    11. Dobra Iulian & Cilianu Marian & Belu Mihaela Gabriela, 2012. "The Costs Of The Electrical Energy In The Aluminium Industry," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 102-106, July.
    12. Hunt Allcott, 2012. "The Smart Grid, Entry, and Imperfect Competition in Electricity Markets," NBER Working Papers 18071, National Bureau of Economic Research, Inc.
    13. Giovanni Goldoni, 2007. "Un bilancio delle liberalizzazioni dei settori dell’energia elettrica e del gas naturale in Italia e in Europa," Working Papers 40, University of Verona, Department of Economics.
    14. Yu, Zuwei, 2003. "A spatial mean-variance MIP model for energy market risk analysis," Energy Economics, Elsevier, vol. 25(3), pages 255-268, May.
    15. Giabardo, Paolo & Zugno, Marco & Pinson, Pierre & Madsen, Henrik, 2010. "Feedback, competition and stochasticity in a day ahead electricity market," Energy Economics, Elsevier, vol. 32(2), pages 292-301, March.
    16. Wilson, Robert B., 2007. "Supply Function Equilibrium in a Constrained Transmission System," Research Papers 1966, Stanford University, Graduate School of Business.
    17. Bert Willems & Guido Pepermans, 2003. "Regulating transmission in a spatial oligopoly: a numerical illustration for Belgium," Energy, Transport and Environment Working Papers Series ete0314, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
    18. Guido Pepermans & Bert Willems, 2004. "Ramsey Pricing in a Congested Network with Market Power in Generation: A Numerical Illustration for Belgium," Energy, Transport and Environment Working Papers Series ete0408, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
    19. Hu, X. & Ralph, D. & Ralph, E.K. & Bardsley, P. & Ferris, M.C., 2004. "Electricity Generation with Looped Transmission Networks: Bidding to an ISO," Cambridge Working Papers in Economics 0470, Faculty of Economics, University of Cambridge.

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