Structural Features that Contribute to Market Power in Electric Power Networks: Some Preliminary Results

In this paper we report an experiment that examines a primary concern of policy makers: how a structural feature of electric power networks can contribute to the exercise of market power by well-positioned players in deregulated markets. One such feature is the distribution of ownership of a given set of generating assets. For example, two large firms could be allocated baseload and intermediate generators such that either firm would be willing to withhold unilaterally the capacity of its intermediate generators from the market, to benefit from the supra-competitive prices which would result from only selling its baseload units. Conversely, ownership of the some of the intermediate generators from each of these firms could be transferred to two other firms, so that no one firm can unilaterally restrict output to spawn supra-competitive prices.