Publications
Publications
- 2023
- HBS Working Paper Series
Do Markets Reduce Prices? Evidence from the Electricity Sector
By: Alexander MacKay and Ignacia Mercadal
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 markups 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 June 2023. Direct download.)