Analysis of electricity industry liberalization in Great Britain: How did the bidding behavior of electricity producers change?

• The impact of regulatory reforms on the bidding of electricity producers is analyzed.
• Duopoly model allows identifying the incentive and disincentive to exercise market power.
• We obtain new results of the effect of divestment series on the incumbent producers.
• We find statistical evidence for the presence of the disincentive to exercise market power.
• There is, though, statistical evidence for the increased incentive to exercise market power.

Promoting competition among electricity producers is crucial for ensuring allocative efficiency and lower electricity prices. This paper empirically examines the wholesale electricity market of England and Wales in order to analyze to what extent regulatory reforms were successful at promoting competition among electricity producers.As a theoretical benchmark we consider a duopoly case, based on which a regression model is specified. The estimation of the regression model allows for documenting new results about the impact of regulatory reforms on the incentive and disincentive to exercise market power by electricity producers during the liberalization process.