Pricing Patterns in Wholesale Electricity Markets: Unilateral Market Power or Coordinated Behavior?*

Abstract

We examine allegations that firms in Alberta's electricity industry manipulated public information to coordinate in the wholesale market. We investigate whether bids by firms who employed unique pricing patterns were consistent with unilateral expected profit maximization. Our results suggest that these firms could have increased expected profits through unilateral deviations. For one firm, the potential to increase profits is greater on days when certain offer patterns are observed, providing support for the claim that such patterns may have assisted coordination on high-priced outcomes. These results suggest that regulators should exercise caution when designing information disclosure policies in concentrated electricity markets.

A review of market power‐mitigation mechanisms in electricity markets

“…According to the literature, many factors determine the possibility of collusion, including market structure, fringe participant expansion's new entry or output, market supply and demand, pricing frequency, the repeated nature of participant interactions, the ability of participants to monitor the behaviour of competitors, and the homogeneity of cost attributes among participants [30][31][32][33]. An analysis of the Spanish electricity market reveals that collusion may appear when the market share and revenues of under-contracted participants decrease and those of over-contracted participants increase [34].…”

Offer Price Information and the Exercise of Market Power: The Effect of the Publication of the Historical Trading Report on Competition in the Alberta Electricity Market

“…Based in part on analysis contained in Market Surveillance Administrator (2013), the paper suggests that producers are able to identify rivals and differentiate their respective responses to them. Brown and Eckert (2019) employ an econometric methodology and data for the year 2013 to consider whether the observed offer behaviour by certain firms in the Alberta electricity market was consistent with unilateral maximization of expected profit. The results indicate that some of these firms could have raised their expected profit by unilaterally deviating from their observed offers, suggesting that market outcomes may be inconsistent with non-cooperative competition.…”