Modeling electricity pricing in a deregulated generation industry: The potential for oligopoly pricing in a poolco
- Tellus Inst., Boston, MA (United States)
The authors calculate the electricity prices that would result from a pure poolco market with identical profit-maximizing generating firms. They advance theoretical concepts developed by Klemperer and Meyer (1989) and Green and Newbery (1992), and propose a new formula for the instantaneous market clearing price when generating firms adopt bidding strategies given by the Nash Equilibrium. Applying his formula to empirical electricity supply and demand data, the authors find that even in markets with a relatively high number of firms, the price of electricity is significantly higher than the short-run marginal cost of generation. They express the average annual price mark-up with a Price-Cost Margin Index, and show how it varies with market concentration, as measured by the Herfindahl-Hirschmann Index (HHI). They conclude that the federal Energy Regulatory Commission's use of the HHI in its merger guidelines could prove inadequate in addressing market power concerns in deregulated poolco markets.
- OSTI ID:
- 6184237
- Journal Information:
- Energy Journal, Journal Name: Energy Journal Vol. 19:3; ISSN ENJODN; ISSN 0195-6574
- Country of Publication:
- United States
- Language:
- English
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