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An experimental analysis of the effects of automated mitigation procedures on investment and prices in wholesale electricity markets

  • Lynne Kiesling


  • Bart Wilson


In this paper we report the findings of an economic experiment that examines the effects of an automated mitigation procedure (AMP) on prices and capacity investment choices of suppliers in a wholesale electricity market. Specifically, we examine the effects of different market power incentives on markets with and without an AMP. While we find that the AMP does not affect overall investment in capacity, the most significant determinant of long-run prices is investment in new capacity. The AMP also does not reduce long-run prices relative to markets without an AMP. Furthermore, our participants successfully manipulated the AMP’s trigger price. Copyright Springer Science+Business Media, LLC 2007

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Article provided by Springer in its journal Journal of Regulatory Economics.

Volume (Year): 31 (2007)
Issue (Month): 3 (June)
Pages: 313-334

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Handle: RePEc:kap:regeco:v:31:y:2007:i:3:p:313-334
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  1. 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.
  2. Holt, Charles A, 1989. "The Exercise of Market Power in Laboratory Experiments," Journal of Law and Economics, University of Chicago Press, vol. 32(2), pages S107-30, October.
  3. Borenstein, Severin, 2000. "Understanding Competitive Pricing and Market Power in Wholesale Electricity Markets," The Electricity Journal, Elsevier, vol. 13(6), pages 49-57, July.
  4. Kahn, Alfred E., 2002. "The Adequacy of Prospective Returns on Generation Investments under Price Control Mechanisms," The Electricity Journal, Elsevier, vol. 15(2), pages 37-46, March.
  5. Severin Borenstein & James Bushnell, 1998. "An Empirical Analysis of the Potential for Market Power in California's Electricity Industry," NBER Working Papers 6463, National Bureau of Economic Research, Inc.
  6. Dean V. Williamson & Céline Jullien & Lynne Kiesling & Carine Staropoli, 2006. "Investment Incentives and Market Power: An Experimental Analysis," EAG Discussions Papers 200605, Department of Justice, Antitrust Division.
  7. Severin Borenstein & James B. Bushnell & Frank A. Wolak, 2002. "Measuring Market Inefficiencies in California's Restructured Wholesale Electricity Market," American Economic Review, American Economic Association, vol. 92(5), pages 1376-1405, December.
  8. 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.
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