European Competition Law Review has, in the December 2006 Issue, published the article “The Power Fallacy: Energinizing the Cellophane Fallacy” written by Lasse Sundahl and Dr Henrik Ballebye Olesen from Copenhagen Economics.
Dr Olesen and Sundahl argue that traditional approaches to market definition may lead to false conclusions in the wholesale electricity market, i.e. a power fallacy. They show that when production costs differ markedly between regions, the low-cost region is a separate market, even if the regions have identical prices. The reason is that a dominant player may use decongestion to import high prices to the low-cost region.
For further information contact Dr Henrik Ballebye Olesen