Analyzing the Impact of Electricity Market Structure Changes and Mergers: The Importance of Forward Commitments

David Brown and Andrew Eckert

Review of Industrial Organization, 2018, vol. 52, issue 1, No 4, 137 pages

Abstract: Abstract We investigate how the effects of market structure changes and mergers in restructured electricity markets depend on the level of forward contracting. We develop a Cournot model of Alberta’s wholesale electricity market that incorporates firms’ forward positions. Using data from 2013 to 2014, we calibrate the forward positions of the five largest firms and simulate the effects of different market structure changes, including a hypothetical merger with asset divestitures. We examine the sensitivity of the simulated effects to assumptions with regard to the firms’ forward commitments. The wholesale market effects of these transactions depend critically on firms’ forward commitments. These results demonstrate the importance of establishing a clear understanding of the size and nature of forward commitments in forecasting the effects of mergers and other market structure changes in wholesale electricity markets.

Keywords: Electricity; Mergers; Forward contracts; Market power (search for similar items in EconPapers)
JEL-codes: D43 L40 L51 L94 Q40 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (7)

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Working Paper: Analyzing the Impact of Electricity Market Structure Changes and Mergers: The Importance of Forward Commitments (2016)
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DOI: 10.1007/s11151-017-9580-1

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