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Measuring Market Power in Network-Constrained Markets

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Listed:
  • Christoph Graf
  • Frank A. Wolak

Abstract

Producers in locational pricing markets have the ability to exercise market power by impacting the extent to which transport capacity constraints bind. We extend the single-location residual demand curve concept to a residual demand hypersurface that quantifies the impact of a supplier’s output change at one location on prices at all locations. This concept improves our ability to explain the offers suppliers submit in the Italian locational pricing electricity market and demonstrates why the locations of a firm’s generation capacity determines the size and direction of locational price changes associated with the divestment of a fixed amount of generation capacity.

Suggested Citation

  • Christoph Graf & Frank A. Wolak, 2025. "Measuring Market Power in Network-Constrained Markets," NBER Working Papers 34272, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34272
    Note: EEE IO
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    More about this item

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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