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Market Power in Electricity Markets: Beyond Concentration Measures

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  • Severin Borenstein
  • James Bushnell
  • Christopher R. Knittel

Abstract

The wave of electricity market restructuring both within the United States and abroad has brought the issue of horizontal market power to the forefront of energy policy. Traditionally, estimation and prediction of market power has relied heavily on concentration measures. In this paper, we discuss the weaknesses of concentration measures as a viable measure of market power in the electricity industry, and we propose an alternative method based oil market simulations that take advantage of existing plant level data. We discuss results from previous studies the authors have performed, and present new results that allow for the detection of threshold demand levels where market power is likely to be a problem. In addition, we analyze the impact of that recent divestitures in the California electricity market will have on estimated market power. We close with a discussion of the policy implications of the results.

Suggested Citation

  • Severin Borenstein & James Bushnell & Christopher R. Knittel, 1999. "Market Power in Electricity Markets: Beyond Concentration Measures," The Energy Journal, , vol. 20(4), pages 65-88, October.
    • Handle: RePEc:sae:enejou:v:20:y:1999:i:4:p:65-88
    DOI: 10.5547/ISSN0195-6574-EJ-Vol20-No4-3
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    References listed on IDEAS

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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    2. Bergman, Lars & Andersson, Bo, 1995. "Market Structure and the Price of Electricity: An ex ante Analysis of the deregulated Swedish Electricity Market," SSE/EFI Working Paper Series in Economics and Finance 47, Stockholm School of Economics.
    3. Aleksandr Rudkevich & Max Duckworth & Richard Rosen, 1998. "Modeling Electricity Pricing in a Deregulated Generation Industry: The Potential for Oligopoly Pricing in a Poolco," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 19-48.
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    Cited by:

    1. Hirth, Lion & Khanna, Tarun M. & Ruhnau, Oliver, 2024. "How aggregate electricity demand responds to hourly wholesale price fluctuations," Energy Economics, Elsevier, vol. 135(C).

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