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An Empirical Analysis of the Potential for Market Power in California’s Electricity Industry
Author(s) -
Borenstein Severin,
Bushnell James
Publication year - 1999
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/1467-6451.00102
Subject(s) - deregulation , hydroelectricity , price elasticity of demand , electricity market , market power , cournot competition , economics , electricity , electricity demand , market structure , industrial organization , electric power industry , electricity generation , microeconomics , natural resource economics , monopoly , market economy , power (physics) , engineering , electrical engineering , physics , quantum mechanics
Using historical cost data, we simulate the California electricity market after deregulation as a static Cournot market with a competitive fringe. Our model indicates that, under the pre‐deregulation structure of generation ownership, there is potential for significant market power in high demand hours, particularly in the fall and early winter months when hydroelectric output is at its lowest level relative to demand. The results also show that two of the most important factors in determining the extent and severity of market power are the level of available hydroelectric production and the elasticity of demand.