Market Power in the Spanish Wholesale Electricity Market.∗

In the context of the recent electricity market reforms in Europe and the US, we evaluate the performance of the Spanish pool. Our method is not based on price-cost estimates but rather on the different behavior of generators with higher market power as compared to the behavior of more competitive producers. Our results indicate that the two larger operators in the market are able to increase prices by a significant amount as compared to the situation in which each plant is run independently. ∗Financial support from Ministerio de Ciencia y Tecnología (BEC 2000-0301), BBVA and IVIE is gratefully acknowledged. We thank Jorge de la Cruz for his very helpful research assistance, and seminar participants at Universidad Autónoma de Barcelona and Universidad de Alicante for their comments and suggestions. We are especially indebted to Eva Ferreira, M. Cruz Loyo and Enrique Pastor for their invaluable help. †Universidad Autónoma de Barcelona y Universidad del País Vasco. ‡Universidad del País Vasco. Departamento de Fundamentos del Análisis Económico II. Avenida Lehendakari Aguirre 83, 48015 Bilbao, Spain. e-mail:[email protected]