Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • 2024
  • Working Paper
  • HBS Working Paper Series

Do Markets Reduce Prices? Evidence from the Electricity Sector

By: Alexander MacKay and Ignacia Mercadal
  • Format:Print
  • | Language:English
  • | Pages:64
ShareBar

Abstract

We construct a novel dataset on electricity generation, wholesale transactions, and retail sales to assess the shift from cost-of-service regulation to deregulated, market-based prices in the context of the U.S. electricity sector. Consistent with earlier studies, we find that the costs of generation fell in deregulated markets. However, despite lower generation costs, wholesale prices increased along with utilities’ overall expenses on energy. The resulting increase in utility costs can explain a substantial portion of the increase in downstream retail prices. Overall, we estimate that the increase in wholesale margins more than offset the efficiency gains, which can occur when markets are not perfectly competitive.

Keywords

Deregulation; Market Power; Markups; Prices; Electricity; Energy; Markets; Governing Rules, Regulations, and Reforms; Price; Utilities Industry

Citation

MacKay, Alexander, and Ignacia Mercadal. "Do Markets Reduce Prices? Evidence from the Electricity Sector." Harvard Business School Working Paper, No. 21-095, February 2021. (Revised March 2024. Direct download.)
  • SSRN
  • Read Now

More from the Authors

    • February 2025
    • American Economic Journal: Microeconomics

    Estimating Models of Supply and Demand: Instruments and Covariance Restrictions

    By: Alexander MacKay and Nathan H. Miller
    • August 2023
    • Faculty Research

    LIV Golf

    By: Alexander J. MacKay
    • May 2023
    • AEA Papers and Proceedings

    Self-Preferencing at Amazon: Evidence from Search Rankings

    By: Chiara Farronato, Andrey Fradkin and Alexander MacKay
More from the Authors
  • Estimating Models of Supply and Demand: Instruments and Covariance Restrictions By: Alexander MacKay and Nathan H. Miller
  • LIV Golf By: Alexander J. MacKay
  • Self-Preferencing at Amazon: Evidence from Search Rankings By: Chiara Farronato, Andrey Fradkin and Alexander MacKay
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College.