Market Power and Market Monitoring

Adib, Parviz; Hurlbut, David

doi:10.1016/b978-008047172-3.50011-8

Cited by 14 publications

(4 citation statements)

References 10 publications

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“…Market power [104][105][106][107], which is also known as pricing power or market structure, is the ability of a company to ultimately raise prices above the competitive level, by exploiting its unique position in the industry or by using a particular method, and to profit from this. Thus, large values of market power may raise concerns of market manipulation.…”

Section: Market Powermentioning

confidence: 99%

Market Manipulation in Stock and Power Markets: A Study of Indicator-Based Monitoring and Regulatory Challenges

et al. 2023

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In recent years, algorithmic-based market manipulation in stock and power markets has considerably increased, and it is difficult to identify all such manipulation cases. This causes serious challenges for market regulators. This work highlights and lists various aspects of the monitoring of stock and power markets, using as test cases the regulatory agencies and regulatory policies in diverse regions, including Hong Kong, the United Kingdom, the United States and the European Union. Reported cases of market manipulations in the regions are examined. In order to help establish a relevant digital regulatory system, this work reviews and categorizes the indicators used to monitor the stock and power markets, and provides an in-depth analysis of the relationship between the indicators and market manipulation. This study specifically compiles a set of 10 indicators for detecting manipulation in the stock market, utilizing the perspectives of return rate, liquidity, volatility, market sentiment, closing price and firm governance. Additionally, 15 indicators are identified for detecting manipulation in the power market, utilizing the perspectives of market power (also known as pricing power or market structure), market conduct and market performance. Finally, the study elaborates on the current challenges in the regulation of stock and power markets in terms of parameter performance, data availability and technical requirements.

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Section: Market Powermentioning

confidence: 99%

Market Manipulation in Stock and Power Markets: A Study of Indicator-Based Monitoring and Regulatory Challenges

et al. 2023

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“…Therefore, persistent long‐term usage of market power to significantly influence average spot price would be prevented by electricity market monitors. Market monitoring is reported to preclude systematic market power usage (Adib and Hurlbut 2008) implying that the participants are price‐takers over the considered planning horizon.…”

Section: Supply Chain With Contracting and Operating Stagesmentioning

confidence: 99%

Why do Energy Markets in Europe Rely on One Instrument?

Kettunen

Nematollahi²,

Zinchenko

2022

Production and Operations Management

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A common feature to electricity markets with derivative contracts is that the traded contracts are almost only futures and that they are traded multiple times the overall electricity demand. To understand why this occurs in practice, we study the efficiency of risk aligning in the competitive energy industry through derivative contract trading. We derive conditions that need to hold for a contract to provide the most efficient risk aligning, among all possible derivative contracts imaginable. We develop a game-theoretical model that includes multiple competing producers and retailers whose decision-makers are heterogeneous in their risk preferences that are captured using mean-variance utilities. We derive closed-form equilibrium quantities for the exchanged contracts and contract prices. We show using a simplified setup that, under an inelastic spot price, the optimal quantity and the price of the traded futures contract are driven by the proportion of the electricity spot price that retailers pass down to the consumers. In particular, this proportion impacts who are the buyers and the sellers of the contracts, what quantities of contracts are traded, and at what price the contracts are traded. We apply the model to the German electricity market and show that the conditions for guaranteeing a futures contract to be the most efficient risk aligning contract hold approximately. Our result can explain the dominance of futures contract trading in the energy industry and also the counter-intuitively large quantity of traded futures, which exceeds multiple times the supplied quantity of electricity. Our results can aid decision-makers in deciding on the types, amounts, and prices of contracts to trade. For market regulators, our results are helpful in providing understanding regarding the contract trading behavior on the market.

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“…As markets expand and evolve, the complexity of the markets has greatly increased, making market monitoring all the more important. Market monitoring keeps a close watch on the efficiency and the effectiveness of the markets and helps to ensure that all market players behave appropriately and do not abuse their market power [48]. All U.S. power markets have market monitoring units.…”

Section: Market Monitoring In An Increasingly Complex Marketmentioning

confidence: 99%