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Download the Paper (180 K, PDF file) - August 2, 1999 Tell a colleague about it. Printing Tips: Select 'print as image' in the Acrobat print dialog if you have trouble printing.

ABSTRACT:
Discussions of competition in restructured electricity markets have revealed many misunderstandings about the definition, diagnosis, and implications of market power. In this paper, I attempt to clarify the meaning of market power and show how it can be distinguished from competitive pricing in markets with significant short-run supply constraints. I also address two common myths about market power: (a) that it is present in all markets and (b) that it must be present in order for firms to remain profitable in markets with significant fixed costs. I conclude by arguing that, while a finding of market power in an industry does not necessarily indicate that government intervention is warranted, such analysis is an important part of creating sound public policy.

SUGGESTED CITATION:
Severin Borenstein, "Understanding Competitive Pricing and Market Power in Wholesale Electricity Markets" (August 2, 1999). Competition Policy Center. Paper CPC99-008.
http://repositories.cdlib.org/iber/cpc/CPC99-008