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Market Power Issues in Liberalized Wholesale Electricity Markets: A Review of the Literature with a Look into the Future

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  • Thao Pham

Abstract

The two last centuries have witnessed an exceptional revolution in the organization of electric power sector worldwide, with the liberalization process transforming what had been a vertically-integrated monopoly subject to regulation into a market-based system. The shift to reliance on market prices raises a risk that some firms could exercise their market power. This paper examines a wide range of methods of detecting market power that have been employed by academics and regulators in the electricity sector. I show that many technical, economic, and regulatory factors render the exercise of market power particularly likely in these markets and make detecting it particularly challenging. Based on an analysis of strengths, weaknesses and popularity of each methodology, I provide several guidelines for future work on market power modeling. This has important implications for policy makers when identifying appropriate policies of market power mitigation and ensuring the functioning of the electricity system in this period of transition in Europe. Classification JEL: D21, D43, L13, L94

Suggested Citation

  • Thao Pham, 2019. "Market Power Issues in Liberalized Wholesale Electricity Markets: A Review of the Literature with a Look into the Future," Revue d'économie politique, Dalloz, vol. 129(3), pages 325-354.
    • Handle: RePEc:cai:repdal:redp_293_0325
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    Citations

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    Cited by:

    1. Wan, Yi & Kober, Tom & Densing, Martin, 2022. "Nonlinear inverse demand curves in electricity market modeling," Energy Economics, Elsevier, vol. 107(C).
    2. Sirin, Selahattin Murat & Erten, Ibrahim, 2022. "Price spikes, temporary price caps, and welfare effects of regulatory interventions on wholesale electricity markets," Energy Policy, Elsevier, vol. 163(C).
    3. Veeraya Imcharoenkul & Surachai Chaitusaney, 2021. "Optimal Variable Renewable Energy Generation Schedules Considering Market Prices and System Operational Constraints," Energies, MDPI, vol. 14(17), pages 1-18, August.
    4. Concettini, Silvia & Creti, Anna & Gualdi, Stanislao, 2022. "Assessing the regional redistributive effect of renewable power production through a spot market algorithm simulator: The case of Italy," Energy Economics, Elsevier, vol. 114(C).

    More about this item

    Keywords

    electricity market; liberalization; market power; oligopoly; market design;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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