Unilateral and collusive market power in the electricity pool of England and Wales

This paper uses a detailed market microsimulation of agent bidding behaviour to provide insights into the evolution of generator market power in the electricity pool of England and Wales. We identify an evolution, as market concentration declined, from unilateral market power dominance in the early years (1990-1996) to tacit collusive coordination towards the end (1996-2001), whereupon the pool was replaced by voluntary bilateral trading. The microsimulation analysis does not provide closed form solutions for market equilibrium nor a multi-agent co-evolutionary set of scenarios, but provides a diagnostic aid in determining when market concentration may decline to the point at which price leadership gives way to tacit collusion as means of exercising market power. (c) 2005 Elsevier B.V. All rights reserved.