Market Power in Price-Regulated Power Industries

M. Soledad Arellano () and Pablo Serra

No 208, Documentos de Trabajo from Centro de Economía Aplicada, Universidad de Chile

Abstract: This paper analyzes market power in price-regulated power industries. We derive market equilibrium under different assumptions (perfect competition, monopoly, Cournot, etc.), with and without free entry. We show that when peak-load pricing is used, producers can exercise market power by increasing the share of peaking technology in the generation portfolio, compared to the welfare-maximizing configuration. In this framework natural measure of market power is the length of time that peaking technology plants operate beyond their operational time in the welfare maximizing solution. We show that when there is free entry with an exogenous fixed entry cost that is later sunk, more intense competition results in higher welfare but fewer firms.

Date: 2005
New Economics Papers: this item is included in nep-com, nep-mic and nep-reg
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:edj:ceauch:208

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