Market Efficiency, Competition, and Communication in Electric Power Markets: Experimental Results

One-sided Markets for Energy | Chapman, Duane | Mount, Timothy | Thomas, Robert J. | Zimmerman, Ray D.
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D. Chapman, C. Vossler, T. Mount, V. Barboni, R. Thomas, R. Zimmerman,
Ecological Economics, Volume 48, Issue 3, March 31, 2004, pp. 317-327.

Economic theory gives no clear indication of the minimum number of producers necessary for a market to define competitive price-quantity equilibria which approximate price equal to marginal cost. Previous work and FERC Guidelines generally suggest that 6 to 10 generators may be workably competitive. Our experiments with PowerWeb suggest that a higher number of suppliers may be necessary to approximate competitive market solutions, this in the absence of any communication among producers. As communications rules are altered to parallel differing types of antitrust enforcement, market results with 24 participants approach pure monopoly values.