IDEAS home Printed from https://ideas.repec.org/p/mee/wpaper/0502.html
   My bibliography  Save this paper

A Review of the Monitoring of Market Power: The Possible Roles of TSOs in Monitoring for Market Power Issues in Congested Transmission Systems

Author

Listed:
  • Paul Twomey
  • Richard Green
  • Karsten Neuhoff
  • David Newbery

Abstract

The paper surveys the literature and publicly available information on market power monitoring in electricity wholesale markets. After briefly reviewing definitions, strategies and methods of mitigating market power we examine the various methods of detecting market power that have been employed by academics and market monitors/regulators. These techniques include structural and behavioural indices and analysis as well as various simulation approaches. The applications of these tools range from spot market mitigation and congestion management through to long-term market design assessment and merger decisions. Various market-power monitoring units already track market behaviour and produce indices. Our survey shows that these units collect a large amount of data from various market participants and we identify the crucial role of the transmission system operators with their access to dispatch and system information. Easily accessible and comprehensive data supports effective market power monitoring and facilitates market design evaluation. The discretion required for effective market monitoring is facilitated by institutional independence.

Suggested Citation

  • Paul Twomey & Richard Green & Karsten Neuhoff & David Newbery, 2005. "A Review of the Monitoring of Market Power: The Possible Roles of TSOs in Monitoring for Market Power Issues in Congested Transmission Systems," Working Papers 0502, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  • Handle: RePEc:mee:wpaper:0502
    as

    Download full text from publisher

    File URL: http://tisiphone.mit.edu/RePEc/mee/wpaper/2005-002.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Allaz Blaise & Vila Jean-Luc, 1993. "Cournot Competition, Forward Markets and Efficiency," Journal of Economic Theory, Elsevier, vol. 59(1), pages 1-16, February.
    2. Green, Richard J & Joanne Evans, 2003. "Why did British electricity prices fall after 1998?," Royal Economic Society Annual Conference 2003 92, Royal Economic Society.
    3. Scheffman, David T & Spiller, Pablo T, 1987. "Geographic Market Definition under the U.S. Department of Justice Merger Guidelines," Journal of Law and Economics, University of Chicago Press, vol. 30(1), pages 123-147, April.
    4. Richard Gilbert & Neuhoff, K. & Newbery, D., 2002. "Allocating Transmission to Mitigate Market Power in Electricity Networks," Cambridge Working Papers in Economics 0225, Faculty of Economics, University of Cambridge.
    5. William W. Hogan, 1997. "A Market Power Model with Strategic Interaction in Electricity Networks," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 107-141.
    6. Cardell, Judith B. & Hitt, Carrie Cullen & Hogan, William W., 1997. "Market power and strategic interaction in electricity networks," Resource and Energy Economics, Elsevier, vol. 19(1-2), pages 109-137, March.
    7. Paul L. Joskow & Edward Kohn, 2002. "A Quantitative Analysis of Pricing Behavior in California's Wholesale Electricity Market During Summer 2000," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 1-35.
    8. Crespo, Joseph G. & Giacchino, Leonardo, 2003. "Improving Market Power Mitigation Rules for Peaking Units," The Electricity Journal, Elsevier, vol. 16(8), pages 47-60, October.
    9. Guthrie, Graeme & Videbeck, Steen, 2003. "Approaches to Assessing Market Power in Electricity Markets," Working Paper Series 4137, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    10. repec:reg:rpubli:73 is not listed on IDEAS
    11. Robert H. Patrick & Frank A. Wolak, 2001. "Estimating the Customer-Level Demand for Electricity Under Real-Time Market Prices," NBER Working Papers 8213, National Bureau of Economic Research, Inc.
    12. Fred S. McChesney & William F. Shughart & David D. Haddock, 2004. "On the Internal Contradictions of the Law of One Price," Economic Inquiry, Western Economic Association International, vol. 42(4), pages 706-716, October.
    13. Froeb, L.M. & Werden, G.J., 1991. "Correlation, Causality, and all that Jazz: The Inherent Shortcomings of Price Tests for Antitrust Market Delineation," Papers 91-6, U.S. Department of Justice - Antitrust Division.
    14. 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.
    15. Shmuel S. Oren, 1997. "Economic Inefficiency of Passive Transmission Rights in Congested Electricity Systems with Competitive Generation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 63-83.
    16. Macatangay, Rafael Emmanuel A., 2001. "Market definition and dominant position abuse under the new electricity trading arrangements in England and Wales," Energy Policy, Elsevier, vol. 29(5), pages 337-340, April.
    17. Shapiro, Carl, 1989. "Theories of oligopoly behavior," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 6, pages 329-414 Elsevier.
    18. 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.
    19. Bushnell, James & Wolfram, Catherine, 2008. "Electricity Markets," Staff General Research Papers Archive 31547, Iowa State University, Department of Economics.
    20. Terry Robinson & Andrzej Baniak, 2002. "The volatility of prices in the English and Welsh electricity pool," Applied Economics, Taylor & Francis Journals, vol. 34(12), pages 1487-1495.
    21. Borenstein, Severin & Bushnell, James, 1999. "An Empirical Analysis of the Potential for Market Power in California's Electricity Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 47(3), pages 285-323, September.
    22. 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.
    23. Neuhoff, Karsten & Barquin, Julian & Boots, Maroeska G. & Ehrenmann, Andreas & Hobbs, Benjamin F. & Rijkers, Fieke A.M. & Vazquez, Miguel, 2005. "Network-constrained Cournot models of liberalized electricity markets: the devil is in the details," Energy Economics, Elsevier, vol. 27(3), pages 495-525, May.
    24. SMEERS, Yves, 1997. "Computable equilibrium models and the restructuring of the European electricity and gas markets," CORE Discussion Papers 1997061, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    25. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-1277, November.
    26. Yves Smeers, 1997. "Computable Equilibrium Models and the Restructuring of the European Electricity and Gas Markets," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 1-31.
    27. Paul L. Joskow, 2003. "The Difficult Transition to Competitive Electricity Markets in the U.S," Working Papers 0308, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
    28. 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.
    29. 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.
    30. 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)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Shukla, Umesh Kumar & Thampy, Ashok, 2011. "Analysis of competition and market power in the wholesale electricity market in India," Energy Policy, Elsevier, vol. 39(5), pages 2699-2710, May.
    2. repec:eee:reensy:v:93:y:2008:i:10:p:1473-1484 is not listed on IDEAS
    3. Adrien de Hauteclocque & Yannick Perez, 2011. "Law & Economics Perspectives on Electricity Regulation," RSCAS Working Papers 2011/21, European University Institute.
    4. Ciarreta, Aitor & Nasirov, Shahriyar & Silva, Carlos, 2016. "The development of market power in the Spanish power generation sector: Perspectives after market liberalization," Energy Policy, Elsevier, vol. 96(C), pages 700-710.
    5. Wisuttisak, Pornchai, 2012. "Regulation and competition issues in Thai electricity sector," Energy Policy, Elsevier, vol. 44(C), pages 185-198.
    6. Somani, Abhishek, 2012. "Financial risk management and market performance in restructured electric power markets: Theoretical and agent-based test bed studies," ISU General Staff Papers 201201010800003479, Iowa State University, Department of Economics.
    7. Vadim Borokhov, 2015. "Antimonopoly regulation method based on perfect price discrimination," Papers 1507.04478, arXiv.org.
    8. Evans, Lewis & Guthrie, Graeme & Lu, Andrea, 2013. "The role of storage in a competitive electricity market and the effects of climate change," Energy Economics, Elsevier, vol. 36(C), pages 405-418.
    9. repec:eee:rensus:v:81:y:2018:i:p2:p:2644-2658 is not listed on IDEAS
    10. de Hauteclocque, Adrien & Rious, Vincent, 2011. "Reconsidering the European regulation of merchant transmission investment in light of the third energy package: The role of dominant generators," Energy Policy, Elsevier, vol. 39(11), pages 7068-7077.
    11. repec:dgr:rugsom:13003-eef is not listed on IDEAS
    12. repec:spr:climat:v:145:y:2017:i:3:d:10.1007_s10584-017-2095-9 is not listed on IDEAS
    13. repec:eee:eneeco:v:66:y:2017:i:c:p:450-465 is not listed on IDEAS

    More about this item

    JEL classification:

    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mee:wpaper:0502. 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: (Sharmila Ganguly). General contact details of provider: http://edirc.repec.org/data/cemitus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.