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Real‐Time Pricing and Imperfect Competition in Electricity Markets *
Author(s) -
Poletti Stephen,
Wright Julian
Publication year - 2020
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/joie.12215
Subject(s) - imperfect competition , market power , electricity , imperfect , economic surplus , microeconomics , electricity market , competition (biology) , economics , electricity pricing , welfare , industrial organization , business , monetary economics , market economy , monopoly , ecology , linguistics , philosophy , electrical engineering , biology , engineering
We analyze the effects of the adoption of real‐time pricing (RTP) of electricity when generating firms have market power. We find that an increase in consumers on RTP contracts decreases peak prices and increases off‐peak prices, increases consumer surplus (both for switching and non‐switching consumers) and welfare, while decreasing industry profits, with these effects being magnified by the extent of market power. We illustrate these results by calibrating our model to the New Zealand electricity market, and find that taking into account the market power of generating firms increases the efficiency gains from RTP adoption by 41%.