The Fall in British Electricity Prices: Market Rules, Market Structure, or Both?

Natalia Fabra () and Juan Toro
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Juan Toro: centrA

Industrial Organization from EconWPA

Abstract: In this paper we investigate the factors contributing to the fall in the Lerner Index (price-cost margin) in the British electricity market during the 90s. A first stage of our analysis models the number of breaks in the Lerner Index and their dating as unknowns. Our results suggest the existence of one structural break in the time series of the Lerner Index. The break point interval includes the go-live of the New Electricity Trading Arrangements (NETA), but also several other (but not all) regulatory interventions. In a second stage, we construct a general regression model for the Lerner index as a function of the regulatory interventions within the estimated break point interval, the Herfindahl- Hirschman Index (HHI), and the demand-capacity ratio. The results show that both the HHI and the demand-capacity ratio are strongly significant for explaining the fall in the Lerner Index. NETA is also significant, even when the Lerner Index is corrected for the influence of the HHI and the demand-capacity ratio.

Keywords: Electricity Markets; Regulatory Reform; Structural Breaks (search for similar items in EconPapers)
JEL-codes: L13 C22 L94 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-ind
Date: 2003-09-16
Note: Type of Document - Tex; prepared on IBM PC; to print on HP;
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpio:0309001

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