Diagnosing and Mitigating Market Power in Chile's Electricity Industry
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Authors
Arellano, M. Soledad
Publication Date
2004-06-16Series
Cambridge Working Papers in Economics
Publisher
Faculty of Economics
Language
en_GB
Type
Working Paper
Metadata
Show full item recordCitation
Arellano, M. S. (2004). Diagnosing and Mitigating Market Power in Chile's Electricity Industry. https://doi.org/10.17863/CAM.5008
Abstract
This paper examines generators' incentives to exercise market power and the strategies they would follow if all electricity supplies were traded in an hourly-unregulated spot market. The industry is modelled as a Cournot duopoly with a competitive fringe; particular care is given to the hydro scheduling decision. Quantitative simulations of generators� strategic behaviour indicate that the largest (Endesa) would have the incentive and power to act unilaterally. It would schedule its hydro resources to take advantage of differences in price electricity: too little supply in high demand periods and too much in low demand periods. Two market power mitigation measures are analysed: requiring Endesa to divest some of its generating capacity, and fixed price forward contracts for dominant generators. Conditions for the development of a voluntary contract market are analysed, as it is not practical to rely
Keywords
Classification-JEL: D43, L11, L13, L94, electricity utilities, market power, scheduling hydro-reservoirs, contracts, Chile's electricity industry
Identifiers
This record's DOI: https://doi.org/10.17863/CAM.5008
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