Market Power: a Dynamic Definition

Market power refers to conditions where the providers of a service can consistently charge prices above those that would be established by a competitive market. There are many well known definitions of market power, including indices intended to quantify the degree of market concentration of energy supplies. Unfortunately, market power considerations within electric power markets require the consideration of the ever changing network conditions that result from congestion. This paper explores the effect of changes in network congestion conditions on one of these indices, the Herfindahl-Hirschman Index. Results indicate that congestion can lead to drastically different values of this index at various locations. Furthermore, when ownership of facilities is dispersed, this can greatly complicate the assessment of market concentration.