Electricity Merger Analysis: Market Screens, Market Definition, and Other Lemmings

Rev Ind Organ (2008) 32:263–288

26 Pages Posted: 9 Jan 2019

See all articles by Darren Bush

Darren Bush

University of Houston Law Center

Date Written: December 28, 2008

Abstract

Much discussion and effort have been devoted to the use of market power screens to detect market power that might arise from existing generation asset portfolios or utility acquisition of new generation assets. The quest is to find the “Holy Grail”: a market power detection mechanism that minimizes the costs to all parties involved while finding the majority of market power exercises. This article contends that market power screens should be utilized with caution in policy and litigation applications because while they meet the criteria of minimizing enforcement costs, they are often unable to detect many types of market power exercises that an electric utility might undertake. The article begins with a discussion of the polestar for all screens—the Department of Justice/Federal Trade Commission Horizontal Merger Guidelines — and its limitations. Next, the article examines the accidentally correct, absolutely incorrect, and other outcomes that arise from the application of screens using FERC’s merger policy statement, “contestable load” analysis, and other examples. The Article concludes by noting that many types of market power exercises are undetectable with market power screens, and that better approaches would increase the probability of detection, given the low level of penalty current imposed upon those that wield market power.

Keywords: energy markets, electricity, industrial organization, antitrust, competition policy, regulated industries

JEL Classification: L1, L13, L43, L51, L9, L94

Suggested Citation

Bush, Darren, Electricity Merger Analysis: Market Screens, Market Definition, and Other Lemmings (December 28, 2008). Rev Ind Organ (2008) 32:263–288, Available at SSRN: https://ssrn.com/abstract=3307579

Darren Bush (Contact Author)

University of Houston Law Center ( email )

4604 Calhoun Road
Houston, TX 77204-6060
United States
713.743.3346 (Phone)

HOME PAGE: http://www.law.uh.edu/faculty/main.asp?PID=1365

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