Empirical Assessment of Market Power in the Alberta Wholesale Electricity Market

Abstract

This paper develops an index to measure a firm's strategic behaviour in the Alberta electricity market. A firm-behaviour parameter is extracted from price-cost margin data by distinguishing a firm-behaviour effect and a demand-elasticity effect. Although strategic firms withheld capacity during the sample period of 2003-2004, when price was above marginal cost, evidence suggests that it is more likely that firms priced competitively than that they used unilateral market power pricing given an inelastic residual demand faced by strategic firms.