Measuring Market Power in Network-Constrained Markets

The paper introduces a residual demand hypersurface to better measure market power in locational pricing markets, specifically by analyzing how output changes at one location impact prices across all locations. This model is applied to the Italian electricity market to explain supplier bidding behavior and the effects of generation capacity divestment.

• Producers in locational pricing markets can exercise market power by influencing the degree to which transport capacity constraints are binding.
• The authors developed a 'residual demand hypersurface' that extends the single-location residual demand curve to measure how a supplier's output change at one location affects prices at all locations.
• The residual demand hypersurface model improves the explanation of supplier offers in the Italian locational pricing electricity market and shows how the location of a firm's capacity affects the price changes resulting from the divestment of a fixed amount of generation capacity.

APA

Wolak, C. G. F. A. (2025). Measuring Market Power in Network-Constrained Markets. Institute for Policy Integrity. https://policyintegrity.org/publications/detail/measuring-market-power-in-network-constrained-markets

Chicago

Wolak, Christoph Graf, Frank A. Measuring Market Power in Network-Constrained Markets. Institute for Policy Integrity, 2025. https://policyintegrity.org/publications/detail/measuring-market-power-in-network-constrained-markets.

Wikipedia

{{cite report |last1=Wolak |first1=Christoph Graf, Frank A. |title=Measuring Market Power in Network-Constrained Markets |publisher=Institute for Policy Integrity |date=22 September 2025 |url=https://policyintegrity.org/publications/detail/measuring-market-power-in-network-constrained-markets |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{wolak2025measuring, author = {Wolak, Christoph Graf, Frank A.}, title = {{Measuring Market Power in Network-Constrained Markets}}, institution = {Institute for Policy Integrity}, year = {2025}, month = sep, url = {https://policyintegrity.org/publications/detail/measuring-market-power-in-network-constrained-markets}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }