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Market Power in Power Markets: An Analysis of Residual Demand Curves in California’s Day-ahead Energy Market (1998-2000)

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  • Chiara Lo Prete
  • Benjamin F. Hobbs

Abstract

2000, with a focus on its day-ahead energy market and its five non-utility thermal generating companies. Our goal is to assess whether the hourly bids of market participants, together with information on thermal unit characteristics and power output, suggest that the five suppliers were behaving in line with Nash supply function competition, bidding close to their marginal costs or restraining quantities relative to the Nash level. The analysis of residual demand inverse elasticities suggests that the five thermal generators had an incentive to exercise unilateral market power that was not always fully exploited. A comparison of market-clearing prices, estimated marginal costs and marginal revenues finds that firm conduct was broadly consistent with Nash supply function competition or more competitive than Nash behavior in most of our sample.

Suggested Citation

  • Chiara Lo Prete & Benjamin F. Hobbs, 2015. "Market Power in Power Markets: An Analysis of Residual Demand Curves in California’s Day-ahead Energy Market (1998-2000)," The Energy Journal, , vol. 36(2), pages 191-218, April.
    • Handle: RePEc:sae:enejou:v:36:y:2015:i:2:p:191-218
    DOI: 10.5547/01956574.36.2.9
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    References listed on IDEAS

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    1. Luis Orea & Jevgenijs Steinbuks, 2018. "Estimating Market Power In Homogenous Product Markets Using A Composed Error Model: Application To The California Electricity Market," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 1296-1321, April.
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    3. David M. Newbery, 1995. "Power Markets and Market Power," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 39-66.
    4. 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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