Deregulation, Market Power, and Prices: Evidence from the Electricity Sector

63 Pages Posted: 26 Feb 2021 Last revised: 13 Dec 2022

See all articles by Alexander MacKay

Alexander MacKay

Harvard University - Business School (HBS)

Ignacia Mercadal

University of Florida

Date Written: December 12, 2022


When deciding whether to introduce market competition in a regulated industry, a regulator faces an important tradeoff. Market-based prices can provide incentives to allocate resources more efficiently and reduce costs, but the presence of market power may lead to increased markups. We construct a novel dataset on electricity generation, wholesale transactions, and retail sales to investigate the impact of deregulation in the context of the U.S. electricity sector. We find that the higher markups charged by generation companies more than offset the efficiency gains, leading to higher wholesale prices. Downstream, incumbent utility retail prices rose one-for-one with the increase in variable costs of procurement, while the introduction of alternative retail suppliers generated modest retail markups for some customers. These results highlight the role of market power in deregulated markets, and show that consumers may prefer regulated prices to market-based prices when markets are not perfectly competitive.

Keywords: Deregulation, Market Power, Markups, Prices, Electricity

JEL Classification: L51, L94, D43, L13

Suggested Citation

MacKay, Alexander and Mercadal, Ignacia, Deregulation, Market Power, and Prices: Evidence from the Electricity Sector (December 12, 2022). Available at SSRN: or

Alexander MacKay (Contact Author)

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Boston, MA 02163
United States


Ignacia Mercadal

University of Florida ( email )

PO Box 117140
MAT 332
Gainesville, FL 32606
United States

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