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Nonparametric Tests for Perfect Competition: Theory and Application to the Nordic Wholesale Electricity Market

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Abstract

This paper develops a simple nonparametric test for perfect competition in markets for homogeneous goods. The method only requires data on prices and some aggregate of output. We then generalize the method to account for variable capacity and intertemporal production decisions. We apply the method to a sample of Swedish data from the Nordic wholesale electricity market. The main results show that the data are approximately rationalizable by perfect competition in bidding zones with low ownership concentration of generation assets, but not in bidding zones characterized by high ownership concentration.

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  • Hjertstrand, Per & Tangerås, Thomas, 2025. "Nonparametric Tests for Perfect Competition: Theory and Application to the Nordic Wholesale Electricity Market," Working Paper Series 1527, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:1527
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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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