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Institute of Business and Economic Research
Competition Policy Center
University of California, Berkeley
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Mediating Market Power in Electricity Networks
Richard Gilbert, University of California at Berkeley
Karsten Neuhoff, University of Cambridge
David Newbery , University of Cambridge

Download the Paper (267 K, PDF file) - August 7, 2002 Tell a colleague about it.
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ABSTRACT:
We ask under what conditions transmission contracts increase or mitigate market power. We show that the allocation process of transmission rights is crucial. In an efficiently arbitraged uniform price auction generators will only obtain contracts that mitigate their market power. However, if generators inherit transmission contracts or buy them in a ‘pay-as-bid’ auction, then these contracts can enhance market power. In the two-node network case banning generators from holding transmission contracts that do not correspond to delivery of their own energy mitigates market power. Meshed networks differ in important ways as constrained links no longer isolate prices in competitive markets from market manipulation. The paper suggests ways of minimizing market power considerations when designing transmission contracts.

SUGGESTED CITATION:
Richard Gilbert, Karsten Neuhoff, and David Newbery , "Mediating Market Power in Electricity Networks" (August 7, 2002). Competition Policy Center. Paper CPC02-032.
http://repositories.cdlib.org/iber/cpc/CPC02-032

 
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