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Understanding Competitive Pricing and Market Power in Wholesale Electricity Markets

Severin Borenstein ()

Competition Policy Center, Working Paper Series from Competition Policy Center, Institute for Business and Economic Research, UC Berkeley

Abstract: Discussions of competition in restructured electricity markets have revealed many misunderstandings about the definition, diagnosis, and implications of market power. In this paper, I attempt to clarify the meaning of market power and show how it can be distinguished from competitive pricing in markets with significant short-run supply constraints. I also address two common myths about market power: (a) that it is present in all markets and (b) that it must be present in order for firms to remain profitable in markets with significant fixed costs. I conclude by arguing that, while a finding of market power in an industry does not necessarily indicate that government intervention is warranted, such analysis is an important part of creating sound public policy.

Keywords: competition; electricity markets (search for similar items in EconPapers)
Date: 1999-08-02
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Journal Article: Understanding Competitive Pricing and Market Power in Wholesale Electricity Markets (2000) Downloads
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