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Market Power in the England and Wales Wholesale Electricity Market 1995-2000

Author

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  • Sweeting, A.

Abstract

This paper shows that generators exercised increasing market power in the England and Wales wholesale electricity market in the second half of the 1990s despite declining market concentration. It examines whether this was consistent with static, non-cooperative oligopoly models, which are widely used to model electricity markets, by testing the static Nash equilibrium assumption that each generator chose its bids to maximise its current profits taking the bids of other generators as given. It finds a significant change in behaviour in late 1996. In 1995 and 1996 generator behaviour was consistent with the static Nash equilibrium assumption if the majority of their output was covered by financial contracts which hedged prices. After 1996 their behaviour was inconsistent with the static Nash equilibrium assumption given their contract cover but it was consistent with tacit collusion.

Suggested Citation

  • Sweeting, A., 2004. "Market Power in the England and Wales Wholesale Electricity Market 1995-2000," Cambridge Working Papers in Economics 0455, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:0455
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    File URL: http://www.econ.cam.ac.uk/electricity/publications/wp/ep55.pdf
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    References listed on IDEAS

    as
    1. Natalia Fabra, 2003. "Tacit Collusion in Repeated Auctions: Uniform Versus Discriminatory," Journal of Industrial Economics, Wiley Blackwell, vol. 51(3), pages 271-293, September.
    2. 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.
    3. Richard Green, 2004. "Did English Generators Play Cournot? Capacity withholding in the Electricity Pool," Working Papers 0410, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
    4. Rafael Macatangay, 2002. "Tacit Collusion in the Frequently Repeated Multi-Unit Uniform Price Auction for Wholesale Electricity in England and Wales," European Journal of Law and Economics, Springer, vol. 13(3), pages 257-273, May.
    5. Mark Armstrong & Simon Cowan & John Vickers, 1994. "Regulatory Reform: Economic Analysis and British Experience," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510790, January.
    6. Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-953, October.
    7. Green, Richard, 1999. "The Electricity Contract Market in England and Wales," Journal of Industrial Economics, Wiley Blackwell, vol. 47(1), pages 107-124, March.
    8. von der Fehr, Nils-Henrik Morch & Harbord, David, 1993. "Spot Market Competition in the UK Electricity Industry," Economic Journal, Royal Economic Society, vol. 103(418), pages 531-546, May.
    9. Green, Richard J, 1996. "Increasing Competition in the British Electricity Spot Market," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 205-216, June.
    10. Natalia Fabra & Juan Toro, 2003. "The Fall in British Electricity Prices: Market Rules, Market Structure, or Both?," Industrial Organization 0309001, EconWPA.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    static oligopoly models; market power; Nash equilibrium; tacit collusion; electricity markets;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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