Long-term contract auctions and market power in regulated power industries

M. Soledad Arellano and Pablo Serra

Energy Policy, 2010, vol. 38, issue 4, 1759-1763

Abstract: A number of countries with oligopolistic power industries have used marginal cost pricing to set the price of energy for small customers. This course of action, however, does not necessarily ensure an efficient outcome when competition is imperfect. The purpose of this paper is to study how the auction of long-term contracts could reduce market power. We do so in a two-firm, two-technology, linear-cost, static model where demand is summarized by a price inelastic load curve. In this context we show that the larger the proportion of total demand auctioned in advance, the lower are both the contract and the average spot price of energy.

Keywords: Electricity; Market; power; Long-term; auctions (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (5)

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