A contribution in experimental economics to classify market power behaviors in an oligopolistic power market

Abstract

The approach of experimental economics is used in this paper to show that other behaviors than perfect competition and classical representations of imperfect competition can be relevant to study a power market on a constrained network. Human subjects compete on a market to maximize their profit while they are located in two different geographical areas with limited interconnector capacity. The eight experiments we run lead to a better understanding of how market power is exercised by the duopoly or the triopoly, how it can influence an adjacent competitive market and a characterisation of subjectspsila behaviour. We find out that subjectspsila behaviours can be classified into three main classes: leaders, who take risk to raise prices, followers who bid according to their expectation of leaderspsila decision, and price takers who bid their marginal price whatever the market conditions. The presence of one leader and several followers is usually sufficient to observe significant use of market power.