Mediating Market Power in Electricity Networks
AbstractWe ask under what conditions transmission contracts increase or mitigate market power. We show that the allocation process of transmission rights is crucial. In an efficiently arbitraged uniform price auction generators will only obtain contracts that mitigate their market power. However, if generators inherit transmission contracts or buy them in a â€˜pay-as-bidâ€™ auction, then these contracts can enhance market power. In the two-node network case banning generators from holding transmission contracts that do not correspond to delivery of their own energy mitigates market power. Meshed networks differ in important ways as constrained links no longer isolate prices in competitive markets from market manipulation. The paper suggests ways of minimizing market power considerations when designing transmission contracts.
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Bibliographic InfoPaper provided by Competition Policy Center, Institute for Business and Economic Research, UC Berkeley in its series Competition Policy Center, Working Paper Series with number qt8zq3z0tj.
Date of creation: 07 Aug 2002
Date of revision:
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electricity; market power; transmission rights; nodal pricing;
Other versions of this item:
- Gilbert, Richard & Neuhoff, Karsten & Newbery, David, 2002. "Mediating Market Power in Electricity Networks," Department of Economics, Working Paper Series qt4sw3h193, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Richard Gilbert & Karsten Neuhoff & David Newbery, 2003. "Mediating Market Power in Electricity Networks," Industrial Organization 0303008, EconWPA.
- Gilbert, Richard & Neuhoff, Karsten & Newbery, David, 2002. "Mediating Market Power in Electricity Networks," Department of Economics, Working Paper Series qt04h2h4hp, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
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- Tarjei Kristiansen & Juan Rosellón, 2006. "A Merchant Mechanism for Electricity Transmission Expansion," Journal of Regulatory Economics, Springer, vol. 29(2), pages 167-193, 03.
- 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.
- Kristiansen, Tarjei, 2007. "Cross-border transmission capacity allocation mechanisms in South East Europe," Energy Policy, Elsevier, vol. 35(9), pages 4611-4622, September.
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