Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/183413 
Year of Publication: 
2017
Series/Report no.: 
IFN Working Paper No. 1184
Publisher: 
Research Institute of Industrial Economics (IFN), Stockholm
Abstract: 
We show that a common regulatory mandate in electricity markets that use location-based pricing that requires all customers to purchase their wholesale electricity at the same quantity-weighted average of the locational prices can increase the performance of imperfectly competitive wholesale electricity markets. Linking locational markets strengthens the incentive for vertically integrated firms to participate in the retail market, which increases competition in the short-term wholesale market. In contrast, linking locational markets through a long-term contract that clears against the quantity-weighted average of short-term wholesale prices does not impact average wholesale market performance. These results imply that a policy designed to address equity considerations can also enhance efficiency in wholesale electricity markets.
Subjects: 
Electricity markets
Equity
Market design
Market performance
Market power
Vertical integration
JEL: 
C72
D43
G10
G13
L13
Document Type: 
Working Paper

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