The AEA is providing open access to all journal content on the AEA website through August 2020 to overcome any difficulties some may have accessing library subscriptions during these challenging times.
The AEA is providing open access to all journal content on the AEA website through August 2020 to overcome any difficulties some may have accessing library subscriptions during these challenging times.
The integration of markets may improve efficiency by lowering costs or reducing local
market power. India, seeking to reduce electricity shortages, set up a new power market,
in which transmission constraints sharply limit trade between regions. During congested
hours, measures of market competitiveness fall and firms raise bid prices. I use confidential
bidding data to estimate the costs of power supply and simulate market outcomes with
more transmission capacity. Counterfactual simulations show that transmission expansion
increases market surplus by 22 percent, enough to justify the investment. One-third of
this gain is due to sellers’ response to a more integrated grid.