The Ideal Competitive Electricity Market. A simulation for Italy

Simona Bigerna, Carlo Andrea Bollino, Maria Chiara D'Errico and Paolo Polinori

MPRA Paper from University Library of Munich, Germany

Abstract: Liberalization in the electricity markets has been characterized by oligopoly conditions and exercise of market power, largely studied in the empirical literature on the supply side. This paper provides a new contribution to the literature on the electricity market presenting a theoretical and empirical model to construct a competitive equilibrium, estimating market power both on the supply and demand side of the day-ahead electricity market. This model provides a useful analysis tool for the policy-maker to implement pro-competitive regulation, explicitly measuring the welfare loss associated with non-competitive market conditions. Results show the effect of non-competitive equilibria for the hourly markets in the period 2013-2014. In an ideal competitive market, prices would be lower than historical prices by about 2-5% and quantities would be higher by about 0.5-1%.

Keywords: electricity market; competitive equilibrium analysis; market power; oligopoly; residual demand and supply function; oligopsony; dead weight loss (search for similar items in EconPapers)
JEL-codes: D1 D43 L13 L81 Q41 (search for similar items in EconPapers)
Date: 2017-12
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Published in Economia Politica 10.1007/s40888-022-00276-6 (2022): pp. 1-33

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