Vertical Separation v. Independent Downstream Entry in the Spanish Electricity Network: An Experimental Approach

Abstract

We present experimental results from a series of sessions organized using the Power Market simulator; a software designed to realistically replicate the Spanish Electricity Market. In the experiments reported here we compare the status quo to two alternative treatments which represent alternative market structures. In one of them, labeled as vertical separation, we assume that power generating firms and electricity distributors-end suppliers belong to separate business groups. In the second, we study the effect of entry by independent end-suppliers. Both alternative scenarios dominate the status quo in terms of market efficiency, whereas the latter of them dominates the former.

Keywords: Experimental economics, Spanish Electricity Market, vertical relations

JEL Classification: C90, L43, L51, L53, L94