Diagnosing Unilateral Market Power in Electricity Reserves Market
We use information released during the investigation of the California electricity crisis of 2000 and 2001 by the Federal Energy Regulatory Commission to diagnose allocative inefficiencies in the stateâ€™s wholesale reserve markets. Material that has been largely neglected allows us to replicate market outcomes with a high degree of precision for the second and third quarters of 2000. Building on the work of Wolak (2000), we calculate a lower bound for the sellersâ€™ price-cost margins using the inverse elasticities of their residual demand curves. The downward bias in our estimates stems from the fact that we donâ€™t account for the hierarchical substitutability of the reserve types. The margins averaged at least 20 percent for the two highest quality types of reserves, regulation and spinning, generating millions of dollars in transfers to a handful of sellers. We attribute the deviations from marginal cost pricing to the marketsâ€™ high concentration and a principal-agent relationship that emerged from their design.
|Date of creation:||15 Jan 2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (530) 752-6548
Web page: http://www.escholarship.org/repec/itsdavis/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- repec:dgr:kubcen:200763 is not listed on IDEAS
- Green, Richard & Newbery, David M G, 1991.
"Competition in the British Electricity Spot Market,"
CEPR Discussion Papers
557, C.E.P.R. Discussion Papers.
- 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 929-53, October.
- Willems, Bert & Rumiantseva, I. & Weigt, H., 2007.
"Cournot versus Supply Functions : What Does the Data tell us?,"
2007-023, Tilburg University, Tilburg Law and Economic Center.
- Willems, Bert & Rumiantseva, Ina & Weigt, Hannes, 2009. "Cournot versus Supply Functions: What does the data tell us?," Energy Economics, Elsevier, vol. 31(1), pages 38-47, January.
- Willems, Bert & Rumiantseva, I. & Weigt, H., 2007. "Cournot Versus Supply Functions : What does the Data Tell us?," Discussion Paper 2007-63, Tilburg University, Center for Economic Research.
- Bert WILLEMS & Ina RUMIANTSEVA & Hannes WEIGT, 2007. "Cournot versus supply functions: what does the data tell us?," Center for Economic Studies - Discussion papers ces0720, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
- Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November.
- Carl Blumstein & Lee Friedman & Richard Green, 2002. "The History of Electricity Restructuring in California," Journal of Industry, Competition and Trade, Springer, vol. 2(1), pages 9-38, June.
- Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
- Kai-Uwe Kühn & Matilde Machado, 2004.
"Bilateral Market Power And Vertical Integration In The Spanish Electricity Spot Market,"
- Kühn, Kai-Uwe & Machado, Matilde Pinto, 2004. "Bilateral Market Power and Vertical Integration in the Spanish Electricity Spot Market," CEPR Discussion Papers 4590, C.E.P.R. Discussion Papers.
- repec:dgr:kubtil:2007023 is not listed on IDEAS
- Frank Wolak, 2000. "An Empirical Analysis of the Impact of Hedge Contracts on Bidding Behavior in a Competitive Electricity Market," International Economic Journal, Taylor & Francis Journals, vol. 14(2), pages 1-39.
- Kamat, Rajnish & Oren, Shmuel S, 2002. "Rational Buyer Meets Rational Seller: Reserves Market Equilibria under Alternative Auction Designs," Journal of Regulatory Economics, Springer, vol. 21(3), pages 247-88, May.
- Knittel, Christopher R. & Roberts, Michael R., 2005. "An empirical examination of restructured electricity prices," Energy Economics, Elsevier, vol. 27(5), pages 791-817, September.
- Frank A. Wolak & Robert H. Patrick, 2001. "The Impact of Market Rules and Market Structure on the Price Determination Process in the England and Wales Electricity Market," NBER Working Papers 8248, National Bureau of Economic Research, Inc.
- Green, Richard J, 1996. "Increasing Competition in the British Electricity Spot Market," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 205-16, June.
- Green, Richard, 1999. "The Electricity Contract Market in England and Wales," Journal of Industrial Economics, Wiley Blackwell, vol. 47(1), pages 107-24, March.
- 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.
- Par Holmberg, 2007. "Supply Function Equilibrium with Asymmetric Capacities and Constant Marginal Costs," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 55-82.
- GABSZEWICZ, Jean J. & THISSE, Jacques-François, .
"Price competition, quality and income disparities,"
CORE Discussion Papers RP
-370, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Barmack, Matthew A., 2003. "What Do the ISOs' Public Bid Data Reveal about the California Market?," The Electricity Journal, Elsevier, vol. 16(1), pages 63-73.
- Chao, Hung-Po & Wilson, Robert, 2002. "Multi-dimensional Procurement Auctions for Power Reserves: Robust Incentive-Compatible Scoring and Settlement Rules," Journal of Regulatory Economics, Springer, vol. 22(2), pages 161-83, September.
- Ramteen Sioshansi & Shmuel Oren, 2007. "How good are supply function equilibrium models: an empirical analysis of the ERCOT balancing market," Journal of Regulatory Economics, Springer, vol. 31(1), pages 1-35, February.
- Bolle, Friedel, 1992. "Supply function equilibria and the danger of tacit collusion : The case of spot markets for electricity," Energy Economics, Elsevier, vol. 14(2), pages 94-102, April.
When requesting a correction, please mention this item's handle: RePEc:cdl:itsdav:qt14q6c0mk. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lisa Schiff)
If references are entirely missing, you can add them using this form.