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Market power in power markets: an analysis of residual demand curves in California’s day-ahead energy market (1998-2000)

Chiara Lo Prete and Benjamin F. Hobbs

Year: 2015
Volume: Volume 36
Number: Number 2
DOI: 10.5547/01956574.36.2.9
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Abstract:
We examine the exercise of market power in California's power market in 1998- 2000, with a focus on its day-ahead energy market and its five non-utility thermal generating companies. Our goal is to assess whether the hourly bids of market participants, together with information on thermal unit characteristics and power output, suggest that the five suppliers were behaving in line with Nash supply function competition, bidding close to their marginal costs or restraining quantities relative to the Nash level. The analysis of residual demand inverse elasticities suggests that the five thermal generators had an incentive to exercise unilateral market power that was not always fully exploited. A comparison of market-clearing prices, estimated marginal costs and marginal revenues finds that firm conduct was broadly consistent with Nash supply function competition or more competitive than Nash behavior in most of our sample.



Cross-product Manipulation in Electricity Markets, Microstructure Models and Asymmetric Information

Chiara Lo Prete, William W. Hogan, Bingyuan Liu, and Jia Wang

Year: 2019
Volume: Volume 40
Number: Number 5
DOI: 10.5547/01956574.40.5.cpre
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Abstract:
Electricity market manipulation enforcement actions have moved from conventional analysis of generator market power in real-time physical markets to materialallegations of sustained cross-product price manipulation in forward financial markets. A major challenge is to develop and apply forward market analyticalframeworks and models. This task is more difficult than for the real-time market. An adaptation of cross-product manipulation models from cash-settled financialmarkets provides an existence demonstration under uncertainty and asymmetric information. The implications of this analysis include strong empirical predictionsabout necessary randomized strategies that are not likely to be observed or sustainable in electricity markets. Absent these randomized strategies and othermarket imperfections, the means for achieving sustained forward market price manipulation remains unexplained.





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