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

61 Pages Posted: 11 Oct 2004

See all articles by Kai-Uwe Kuhn

Kai-Uwe Kuhn

University of East Anglia (UEA) - Centre for Competition Policy; Centre for Economic Policy Research (CEPR)

Matilde Pinto Machado

Universidad Carlos III de Madrid - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: July 2004

Abstract

The Spanish Electricity spot market is highly concentrated on the seller and the buyer side. Furthermore, unlike electricity spot markets in other deregulated 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 analyze the impact of market power on prices and productive efficiency and use it empirically 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 arise from the exercise of bilateral market power.

Keywords: Market power test, vertical integration, electricity markets, supply function equilibrium

JEL Classification: L13, L41, L94

Suggested Citation

Kuhn, Kai-Uwe and Machado, Matilde P, Bilateral Market Power and Vertical Integration in the Spanish Electricity Spot Market (July 2004). Available at SSRN: https://ssrn.com/abstract=601061 or http://dx.doi.org/10.2139/ssrn.601061

Kai-Uwe Kuhn (Contact Author)

University of East Anglia (UEA) - Centre for Competition Policy ( email )

UEA
Norwich Research Park
Norwich, Norfolk NR47TJ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Matilde P Machado

Universidad Carlos III de Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34 91 624 9571 (Phone)
+34 91 624 9875 (Fax)

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