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Title: Bilateral Market Power and Vertical Integration in the Spanish Electricity Spot Market

Author(s): Kai-Uwe Kühn and Matilde Pinto Machado

Publication Date: September 2004

Keyword(s): bilateral market power, electricity markets, market power test, supply function equilibirum and vertical integration

Programme Area(s): Industrial Organization

Abstract: The Spanish electricity spot market is highly concentrated both on the seller and the buyer side. Furthermore, unlike electricity spot markets in other deregulated electricity systems, large buyers and sellers are typically vertically integrated. This allows both large net sellers and large net buyers to strategically influence the spot market price. We develop a supply function model of this market to analyse the impact of market power on prices and productive efficiency and use it empiricially to detect such bilateral market power. Our estimates suggest that market power has had little impact on spot market prices but that substantial productive inefficiencies may have arisen from the exercise of bilateral market power.

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Bibliographic Reference

Kühn, K and Machado, M. 2004. 'Bilateral Market Power and Vertical Integration in the Spanish Electricity Spot Market'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=4590