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A new design for market power monitoring in the electricity market. A simulation for Italy

Author

Listed:
  • Simona Bigerna

    (University of Perugia)

  • Carlo Andrea Bollino

    (University of Perugia
    KAPSARC)

  • Maria Chiara D’Errico

    (University of Perugia)

  • Paolo Polinori

    (University of Perugia)

Abstract

The liberalization of electricity markets has been dominated by conditions of oligopoly and market power, as shown in numerous studies in empirical literature on the supply side. However, regulators have used statistical measurements to monitor the extent of market power, making little reference to founded theoretical approaches. This paper provides a new contribution to the literature on the electricity market by presenting a theoretical and empirical model to construct competitive equilibrium, and estimating market power on both the supply and demand side of the day-ahead electricity market. We implement an accurate measurement of the welfare loss associated with non-competitive market conditions, based on ex-ante demand and supply behavior.This model provides a useful analytical tool for regulators and policy-makers in order to implement pro-competitive regulation. We perform an empirical simulation to show the effects of non-competitive equilibria on the Italian hourly markets over the period 2013–2014. In an ideal competitive market, prices would be lower than historical prices by about 2–5% and quantities would be higher by about 0.5–1%.

Suggested Citation

  • Simona Bigerna & Carlo Andrea Bollino & Maria Chiara D’Errico & Paolo Polinori, 2023. "A new design for market power monitoring in the electricity market. A simulation for Italy," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 40(1), pages 285-317, April.
    • Handle: RePEc:spr:epolit:v:40:y:2023:i:1:d:10.1007_s40888-022-00276-6
    DOI: 10.1007/s40888-022-00276-6
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    More about this item

    Keywords

    Electricity market; Competitive benchmark analysis; Market power; Dead weight loss;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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