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The Competitive Effects of Linking Electricity Markets Across Space and Time

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  • Tangerås, Thomas

    (Research Institute of Industrial Economics (IFN))

  • Wolak, Frank A.

    (Program on Energy and Sustainable Development and Department of Economics)

Abstract

We show that a common regulatory mandate in electricity markets that use location-based pricing that requires all customers to purchase their wholesale electricity at the same quantity-weighted average of the locational prices can increase the performance of imperfectly competitive wholesale electricity markets. Linking locational markets strengthens the incentive for vertically integrated firms to participate in the retail market, which increases competition in the short-term wholesale market. In contrast, linking locational markets through a long-term contract that clears against the quantity-weighted average of short-term wholesale prices does not impact average wholesale market performance. These results imply that a policy designed to address equity considerations can also enhance efficiency in wholesale electricity markets.

Suggested Citation

  • Tangerås, Thomas & Wolak, Frank A., 2017. "The Competitive Effects of Linking Electricity Markets Across Space and Time," Working Paper Series 1184, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:1184
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    References listed on IDEAS

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    Cited by:

    1. Holmberg, Pär & Tangerås, Thomas & Ahlqvist, Victor, 2018. "Central- versus Self-Dispatch in Electricity Markets," Working Paper Series 1257, Research Institute of Industrial Economics, revised 27 Mar 2019.
    2. Qiang Chen & Anush Balian & Mykola Kyzym & Tetiana Salashenko & Inna Gryshova & Viktoriia Khaustova, 2021. "Electricity Markets Instability: Causes of Price Dispersion," Sustainability, MDPI, vol. 13(22), pages 1-19, November.
    3. Lundin, Erik & Tangerås, Thomas P., 2020. "Cournot competition in wholesale electricity markets: The Nordic power exchange, Nord Pool," International Journal of Industrial Organization, Elsevier, vol. 68(C).

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    More about this item

    Keywords

    Electricity markets; Equity; Market design; Market performance; Market power; Vertical integration;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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