Market Power in the Spanish Electricity Auction

Abstract

We use hourly bid data from the Spanish day-ahead electricity auction to obtain a lower bound measure of generators' market power. Our method is not based on cost estimates but rather on the different behavior of strategic generators as compared to the behavior of more competitive producers. The results indicate that, despite the price cap effect of regulation in this market, the larger operators in the day-ahead market are able to increase prices above the competitive benchmark by a significant amount.