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An Empirical Analysis of the Potential for Market Power in California’s Electricity Industry

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  • Severin Borenstein
  • James Bushnell

Abstract

Using historical cost data, we simulate the California electricity market after deregulation as a static Cournot market with a competitive fringe. Our model indicates that, under the pre‐deregulation structure of generation ownership, there is potential for significant market power in high demand hours, particularly in the fall and early winter months when hydroelectric output is at its lowest level relative to demand. The results also show that two of the most important factors in determining the extent and severity of market power are the level of available hydroelectric production and the elasticity of demand.

Suggested Citation

  • Severin Borenstein & James Bushnell, 1999. "An Empirical Analysis of the Potential for Market Power in California’s Electricity Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 47(3), pages 285-323, September.
    • Handle: RePEc:bla:jindec:v:47:y:1999:i:3:p:285-323
    DOI: 10.1111/1467-6451.00102
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    1. Cardell, Judith B. & Hitt, Carrie Cullen & Hogan, William W., 1997. "Market power and strategic interaction in electricity networks," Resource and Energy Economics, Elsevier, vol. 19(1-2), pages 109-137, March.
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