Market structure in the US electricity industry: A long-term perspective

Abstract

We estimate changes in market structure in the US electric power industry during the last three decades using two independent approaches. First, we estimate an industry-wide conjectural-variations parameter. We find that industry concentration was generally rising during the 1970s, but has been gradually and consistently falling since the early 1980s. To check the robustness of these results, we then use a translog production function to estimate the Lerner Index. The results confirm that the industry was becoming less concentrated during the 1980s, though the Lerner Index tended to fluctuate during the late 1980s and early 1990s. Our results suggest that the current state of the electricity industry may have more to do with long-term changes in market structure than recent attempts to establish competitive wholesale electricity markets.