Market Power in the England and Wales Wholesale Electricity Market 1995–2000

Abstract

This paper shows that generators exercised increasing market power in the England and Wales wholesale electricity market in the second half of the 1990s despite declining market concentration.It examines whether this was consistent with static, non-cooperative oligopoly models, which are widely used to model electricity markets, by testing the static Nash equilibrium assumption that each generator chose its bids to maximize its current profits taking the bids of other generators as given. It finds a significant change in behavior in late 1996. In 1995 and 1996 generator behavior was consistent with the static Nash equilibrium assumption if the majority of their output was covered by financial contracts which hedged prices. After 1996 their behavior was inconsistent with the static Nash equilibrium assumption given their contract cover but it was consistent with tacit collusion.

Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market

“…Our study of deregulated retail markets expands upon a rich literature on deregulated electricity markets that has focused on wholesale markets (e.g. Wolfram [1999], Borenstein et al [2002], Bushnell et al [2008], Sweeting [2007], and Hortacsu and Puller [2008]). More generally, the phenomenon we study -frictions associated with allowing choice in settings where consumers previously did not have options -is not confined to formerly regulated utilities.…”

Irish and British electricity prices: what recent history implies for future prices

“…Centralised pool markets can exhibit market power problems. This was the case with the pool market in England and Wales (Wolfram, 1999), even after the original incumbents were forced to divest some of their assets (Sweeting, 2007). When entry is difficult and capacity is limited transparency can increase the incentive to collude, as shown by Kühn (2012).…”

Supply function equilibria: Step functions and continuous representations

“…Sweeting (2007) similarly estimates best responses to realizations of a smoothed residual demand schedule in the English Electricity Pool and is able to convincingly characterise the various phases of market evolution and the exercise of market power. Wolak (2001) has also used observed bidding behaviour to back out the unobserved underlying cost and contract positions of generators bidding into the Australian market.…”