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Screening instruments for monitoring market power — The Return on Withholding Capacity Index (RWC)

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  • Bataille, Marc
  • Bodnar, Olivia
  • Steinmetz, Alexander
  • Thorwarth, Susanne

Abstract

While markets have been liberalized all over the world, incumbents often still hold a dominant position, e.g. on energy markets. Thus, wholesale electricity markets are subject to market surveillance. Nevertheless, consolidated findings on abusive practices of market power and their cause and effect in these markets are scarce and non-controversial market monitoring practices fail to exist. Right now, the Residual Supply Index (RSI) is the most important instrument for market monitoring. However, a major drawback of this index is its focus on just one specific aspect of market power in wholesale electricity markets whereas different consequences of market power are possible. Hence, markets could be distorted in several ways and we propose the “Return on Withholding Capacity Index” (RWC) as a complementary index to the RSI. The index is a measure of the firms' incentive to withhold capacity. The benefits and practicability of the RWC are shown by an application on data for the German-Austrian electricity wholesale market in 2016.

Suggested Citation

  • Bataille, Marc & Bodnar, Olivia & Steinmetz, Alexander & Thorwarth, Susanne, 2019. "Screening instruments for monitoring market power — The Return on Withholding Capacity Index (RWC)," Energy Economics, Elsevier, vol. 81(C), pages 227-237.
    • Handle: RePEc:eee:eneeco:v:81:y:2019:i:c:p:227-237
    DOI: 10.1016/j.eneco.2019.03.011
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    Cited by:

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    2. Bo Sun & Siyuan Cheng & Jingdong Xie & Xin Sun, 2022. "Identification of Generators’ Economic Withholding Behavior Based on a SCAD-Logit Model in Electricity Spot Market," Energies, MDPI, vol. 15(11), pages 1-23, June.
    3. Simona Bigerna & Carlo Andrea Bollino & Maria Chiara D’Errico & Paolo Polinori, 2023. "A new design for market power monitoring in the electricity market. A simulation for Italy," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 40(1), pages 285-317, April.
    4. Yuna Hao & Behrang Vand & Benjamin Manrique Delgado & Simone Baldi, 2023. "Market Manipulation in Stock and Power Markets: A Study of Indicator-Based Monitoring and Regulatory Challenges," Energies, MDPI, vol. 16(4), pages 1-28, February.
    5. Cheng, Xiong & Lv, Xin & Li, Xianshan & Zhong, Hao & Feng, Jia, 2023. "Market power evaluation in the electricity market based on the weighted maintenance object," Energy, Elsevier, vol. 284(C).
    6. N. M. Rozanova, 2021. "Methodological Issues of Modern Competition Policy," Studies on Russian Economic Development, Springer, vol. 32(5), pages 492-498, September.
    7. Shan, Rui & Abdulla, Ahmed & Li, Mingquan, 2021. "Deleterious effects of strategic, profit-seeking energy storage operation on electric power system costs," Applied Energy, Elsevier, vol. 292(C).

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    More about this item

    Keywords

    Market power; Electric power markets; Residual Supply Index;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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