On the Evaluation of Market Power and Market Dominance - The Nordic Electricity Market

Document type: Journal Articles
Article type: Original article
Peer reviewed: Yes
Author(s): Stefan Hellmer, Linda Wårell
Title: On the Evaluation of Market Power and Market Dominance - The Nordic Electricity Market
Journal: Energy Policy
Year: 2009
Volume: 37
Issue: 8
Pagination: 3235-3241
ISSN: 0301-4215
Publisher: Elsevier
URI/DOI: 10.1016/j.enpol.2009.04.014
ISI number: 000267417300042
Organization: Blekinge Institute of Technology
Department: School of Management (Sektionen för management)
School of Management S- 371 79 Karlskrona
+46 455 38 50 00
Authors e-mail: she@bth.se
Language: English
Abstract: This paper studies different concentration and dominance measures using structural indexes used to initially screen the competitive situation in a market. The Nordic and Swedish electricity markets are used as the empirical cases. Market concentration issues in the Nordic electricity market in general and in Sweden in particular have been, at least in initial screenings, approached by the Herfindahl-Hirschman-Index (HHI). This article uses an alternative measure to HHI, which is based on market shares of the two largest firms in the market. The results shows that only the Swedish wholesale market has a firm that can be regarded as dominant, but only during very short periods. The results from a hypothetical merger between the second and third largest company in the Swedish wholesale market shows that when the dominant position of the largest firm is reduced, by increasing the size of the second largest firm, the threshold value indicates that competition actually will increase (contradicting to the HHI).
Subject: Economics\Macro Economics
Business Administration\Management Control
Keywords: Market dominance, Electricity market, Herfindahl-Hirschman Index