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Measuring Market Power in Wholesale Electricity Italian Market

C. Andrea Bollino

University of Perugia - Department of Economics, Finance and Statistics

Paolo Polinori

University of Perugia - Department of Economics

August 2008

In the new deregulated competitive Italian electricity many interesting issues arise as the market complexity, the firm strategic behavior, the market power size, and so on. Effective competition in the electricity market is a necessary features of a successful supply industry restructuring. In this paper we examine the degree of competition in the Italian market during the period April 2004 to December 2004 in two principal ways. In the first one we estimate a very intuitive relation among the differences between the hourly equilibrium price (ph) and the individual hourly bids that the competitors offer around ph, and a large set of structural and behavioral variables. In the second one the aim is twofold. The first one is to build the residual demand for each Italian Generation Company. The construction of the residual demand curve system is the necessary condition to get the second aim which is to measure the unilateral market power for the Italian Generation Companies. Following Wolak (2003) approach the appropriate measure of the unilateral market power is the Lerner index based on the residual demand curve elasticity which is computed as arc elasticity. The expected results is a deeper understanding of the Wholesale Italian Electricity Markets and of its mechanism in order to enhance competition and to design appropriate market surveillance.

Number of Pages in PDF File: 27

Keywords: Market power, Lerner index, Residual demand

JEL Classification: L11, L13, Q41

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Date posted: May 5, 2008  

Suggested Citation

Bollino, C. Andrea and Polinori, Paolo, Measuring Market Power in Wholesale Electricity Italian Market (August 2008). Available at SSRN: http://ssrn.com/abstract=1129202 or http://dx.doi.org/10.2139/ssrn.1129202

Contact Information

Carlo Andrea Bollino
University of Perugia - Department of Economics, Finance and Statistics ( email )
Perugia, 06123
Paolo Polinori (Contact Author)
University of Perugia - Department of Economics ( email )
via A. Pascoli, 20
Perugia, Perugia 06123
+39 075 5855002 (Phone)
+39 075 5855299 (Fax)
HOME PAGE: http://www.ec.unipg.it/DEFS/polinori.html
Feedback to SSRN

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