Market power and strategic interaction in electricity networks

Special conditions in electric networks complicate the analysis of the geographic scope of the horizontal market power. Unlike the conventional setting where a firm exercises market power by restricting its own production, there could be situations in constraining electrical networks where a generator would exercise market power by increasing its production in order to block transmission of a disproportionate amount of competing generation. A model with a set of Cournot firms, a collection of competitive fringe participants and an explicit representation of the electrical network illustrates the possible strategic interactions. (C) 1997 Elsevier Science B.V.