Market Power in Price-Regulated Power Industries
AbstractThis paper analyzes market power in price-regulated power industries. We derive market equilibrium under different assumptions (perfect competition, monopoly, Cournot, etc.), with and without free entry. We show that when peak-load pricing is used, producers can exercise market power by increasing the share of peaking technology in the generation portfolio, compared to the welfare-maximizing configuration. In this framework natural measure of market power is the length of time that peaking technology plants operate beyond their operational time in the welfare maximizing solution. We show that when there is free entry with an exogenous fixed entry cost that is later sunk, more intense competition results in higher welfare but fewer firms.
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Bibliographic InfoPaper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 208.
Date of creation: 2005
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-09 (All new papers)
- NEP-COM-2005-12-09 (Industrial Competition)
- NEP-MIC-2005-12-09 (Microeconomics)
- NEP-REG-2005-12-09 (Regulation)
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