Empirical Studies of Competition in the Chilean Electricity Market

Abstract

This paper analyzes the levels of competition and the existence of market power in the Chilean electricity market using econometric models. Previous studies of this subject are based on simulations models, but this one is the first using information of market transactions.We study the contracts markups in two different situations. First, we analyze the impact of the Argentine gas crisis on the levels of competition. Second, we compare the intensity of the competition among generators in large customer contracts and in distribution auction processes.We find statistically significant evidence to affirm that the margins of the contracts increased after the gas crisis. This variation cannot be explained exclusively by the change of developing technology after the crisis. In addition, there is evidence to affirm that the generators compete more intensely in auctions of distributors that in the large customer contracts. This difference cannot be attributed to the characteristics of customers, since in both cases there are similar potential risks. These two studies are sufficient evidence to discard high degrees of intensity of competition in Chile´s electricity market