Law & Economics : ENERGY - ELECTRICITY - MARKET POWER

Energy: Market power in the electricity market

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The European Commission has recently opened a sector inquiry into the internal electricity market. Due to continued high concentration and sharply increasing prices, the Commission is concerned that competition could be distorted. The conclusions of the inquiry will not be known for more than a year. In the meantime, let us take stock of the economic analysis of market power in this very specific sector. The purpose of the article is to examine how it can be assessed, highlighted and reduced.

In June 2005, the European Commissioners for Competition and Energy announced the launch of an inquiry into the state of competition in the electricity sector. A little less than 10 years after the first Directive aimed at establishing the internal energy market, the Commission is concerned about the increase in prices that risks penalising the competitiveness of the European Union. Neelie Kroes and Andris Piebalgs note inter alia that integration between national markets is slow; that the arrival of new competitors is limited; and that switching rates are generally low. For both Commissioners, these elements suggest that there are barriers to competition. The sector inquiry should focus on the functioning of wholesale markets. These markets include system operator purchases to

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François Lévêque, Energy: Market power in the electricity market, September 2005, Concurrences N° 3-2005, Art. N° 1359, pp. 28-32

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