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Abstract:
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This paper considers the performance of the New Zealand Electricity Market after the introduction of competition for the supply of wholesale electricity in 1996. Using data from 1997 to 2006, this research identifies a market system using two-stage least squares regression and estimates a market power parameter that reflects any behavior of suppliers in raising prices above competitive levels. The approach used in this paper considers the effect of a change in the elasticity of demand to evaluate whether resulting shifts in market prices and quantities can be observed in the data. The analysis in this paper suggests that average supplier conduct in the New Zealand Electricity Market is more consistent with conditions of perfect competition than other market models, such as Cournot oligopoly or monopoly. When market operations are separately analyzed in two time periods (early trading and recent trading), the empirical model finds that market power concerns have become more important in recent years. There are several possible reasons that recent trading reflects a more significant use of market power, and a range of possible policy measures are discussed that might help to facilitate continued supplier competition in the New Zealand Electricity Market. |