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Modeling Electricity Pricing in a Deregulated Generation Industry: The Potential for Oligopoly Pricing in a Poolco
Abstract
We calculate the electricity prices that would result from a pure "poolco" market with identical profit-maximizing generating firms. We advance theoretical concepts developed by Klemperer and Meyer (1989) and Green and Newbery (1992), and propose a new formula for the instantaneous market clearing price when generating firms adopt bidding strategies given by the Nash Equilibrium. Applying this formula to empirical electricity supply and demand data, we find that even in markets with a relatively high number of firms, the price of electricity is significantly higher than the short-run marginal cost of generation. We express the average annual price mark-up with a Price-Cost Margin Index, and show how it varies with market concentration, as measured by the Herfindahl-Hirschmann Index (HHI). We conclude that the Federal Energy Regulatory Commission's use of the HHI in its merger guidelines could prove inadequate in addressing market power concerns in deregulated poolco markets.
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Citations
Cited by
Electricity market modeling trends
Ventosa, M., Baı́llo, Á., Ramos, A., & Rivier, M. (2005) · Energy Policy · doi:10.1016/j.enpol.2003.10.013 · Cited by 708
Forecasting loads and prices in competitive power markets
Bunn, D. W. (2000) · Proceedings of the IEEE · doi:10.1109/5.823996 · Cited by 458
Theory and Application of Linear Supply Function Equilibrium in Electricity Markets
Baldick, R., Grant, R., & Kahn, E. (2004) · Journal of Regulatory Economics · doi:10.1023/b:rege.0000012287.80449.97 · Cited by 314
A Reinforcement Learning Model to Assess Market Power Under Auction-Based Energy Pricing
Nanduri, V., & Das, T. K. (2007) · IEEE Transactions on Power Systems · doi:10.1109/tpwrs.2006.888977 · Cited by 168
A Stochastic Game Approach for Modeling Wholesale Energy Bidding in Deregulated Power Markets
Ragupathi, R., & Das, T. K. (2004) · IEEE Transactions on Power Systems · doi:10.1109/tpwrs.2004.825910 · Cited by 31
Metadata
- Authors
- Rudkevich, A., Duckworth, M., & Rosen, R.
- Venue
- The Energy Journal
- Publisher
- SAGE Publications
- Published
- 1998-07
- Volume
- 19
- Issue
- 3
- Pages
- 19-48
- ISSN
- 0195-6574 (ISSN-L)
- 1944-9089
- OpenAlex
- W2035643881
- Cited by
- 213
- References
- 0
- FWCI
- 14.59
- Type
- journal article
- Language
- en
- Open access
- closed
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- CoChat. (2026). Citation check: Modeling Electricity Pricing in a Deregulated Generation Industry: The Potential for Oligopoly Pricing in a Poolco. https://app.cochat.ai/papers/10.5547/issn0195-6574-ej-vol19-no3-2
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- Rudkevich, A., Duckworth, M., & Rosen, R. (1998). Modeling Electricity Pricing in a Deregulated Generation Industry: The Potential for Oligopoly Pricing in a Poolco. The Energy Journal. https://doi.org/10.5547/issn0195-6574-ej-vol19-no3-2
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
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