Oligopoly and Collusion in the Colombian Electricity Market

Jorge Barrientos Marin and Hector Gomez Marin
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Jorge Barrientos Marin: Department of Economics, Faculty of Economic Sciences, University of Antioquia, Medellin, Ant, 050001 Colombia
Hector Gomez Marin: Department of Economics, Faculty of Economic Sciences, University of Antioquia, Medellin, Ant, 050001 Colombia

International Journal of Energy Economics and Policy, 2022, vol. 12, issue 3, 125-134

Abstract: The Wholesale Electricity Market WEM in Colombia was created with Laws 142 and 143 of 1994 with the aim of promoting and preserving competition among agents and guaranteeing an efficient energy spot price. However, in practice the market works as an oligopoly in competition; evidence indicates there is market concentration, without reaching abuse of dominant position or price collusion, at least not explicitly. This paper develops a game model with incomplete information, in which there is at least a Perfect Bayesian Equilibrium with implicit collusion among agents. That is, it is highly likely that, under certain conditions, some generators tacitly follow the price strategies of agents with greater installed generation capacity (pivotal) and hence propose similar bid prices. The empirical analysis shows that scenarios of radical and similar increases in bid prices, for different generators, are a pattern present in the WEM.

Keywords: Electricity markets; oligopoly; collusion; incomplete information; Bayesian equilibrium (search for similar items in EconPapers)
JEL-codes: C70 C72 D43 D82 L13 L94 Q41 (search for similar items in EconPapers)
Date: 2022
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