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Power marketer pricing behavior in the California Power Exchange

  • Hodge, Tyler
  • Dahl, Carol A.

Various studies have examined whether market power abuses by independent electricity generators contributed to the demise of the California Power Exchange (PX). However, the behavior of wholesale power marketers has generally been overlooked. To fill this gap, our paper focuses on the pricing behavior of five major power marketers in the California PX during 2000: Duke Energy Trading & Marketing, Reliant Energy Services, Dynegy Power Marketing, Enron Power Marketing, and Williams Energy Marketing & Trading. Our unique data set, collected by the Federal Energy Regulatory Commission during an investigation of energy market pricing manipulation, allows us to assess the level of market power using the conduct parameter pricing model. The estimated conduct parameter allows us to determine power marketer pricing behavior is competitive, Cournot, or collusive. Our results indicate that Duke Energy and Reliant were exercising market power when pricing the wholesale electricity they sold in the California PX during 2000. No statistical evidence was uncovered to show that the smaller marketers – Dynegy, Williams and, Enron – were setting prices at a level higher than those consistent with a competitive market.

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File URL: http://www.sciencedirect.com/science/article/pii/S0140988311001083
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Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 34 (2012)
Issue (Month): 2 ()
Pages: 568-575

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Handle: RePEc:eee:eneeco:v:34:y:2012:i:2:p:568-575
DOI: 10.1016/j.eneco.2011.05.003
Contact details of provider: Web page: http://www.elsevier.com/locate/eneco

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  1. Iwata, Gyoichi, 1974. "Measurement of Conjectural Variations in Oligopoly," Econometrica, Econometric Society, vol. 42(5), pages 947-66, September.
  2. Paul Joskow & Edward Kahn, 2001. "A Quantitative Analysis of Pricing Behavior in California's Wholesale Electricity Market During Summer 2000," NBER Working Papers 8157, National Bureau of Economic Research, Inc.
  3. Steven L. Puller, 2007. "Pricing and Firm Conduct in California's Deregulated Electricity Market," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 75-87, February.
  4. Severin Borenstein & James Bushnell & Christopher R. Knittel & Catherine Wolfram, 2001. "Trading Inefficiencies in California's Electricity Markets," NBER Working Papers 8620, National Bureau of Economic Research, Inc.
  5. Frank A. Wolak, 2003. "Measuring Unilateral Market Power in Wholesale Electricity Markets: The California Market, 1998–2000," American Economic Review, American Economic Association, vol. 93(2), pages 425-430, May.
  6. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
  7. Catherine D. Wolfram, 1999. "Measuring Duopoly Power in the British Electricity Spot Market," American Economic Review, American Economic Association, vol. 89(4), pages 805-826, September.
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