The Fall in British Electricity Prices: Market Rules, Market Structure, or Both?
AbstractIn this paper we investigate the factors contributing to the fall in the Lerner Index (price-cost margin) in the British electricity market during the 90s. A first stage of our analysis models the number of breaks in the Lerner Index and their dating as unknowns. Our results suggest the existence of one structural break in the time series of the Lerner Index. The break point interval includes the go-live of the New Electricity Trading Arrangements (NETA), but also several other (but not all) regulatory interventions. In a second stage, we construct a general regression model for the Lerner index as a function of the regulatory interventions within the estimated break point interval, the Herfindahl- Hirschman Index (HHI), and the demand-capacity ratio. The results show that both the HHI and the demand-capacity ratio are strongly significant for explaining the fall in the Lerner Index. NETA is also significant, even when the Lerner Index is corrected for the influence of the HHI and the demand-capacity ratio.
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Bibliographic InfoPaper provided by EconWPA in its series Industrial Organization with number 0309001.
Date of creation: 16 Sep 2003
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Electricity Markets; Regulatory Reform; Structural Breaks;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
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