The Effects of Exercise of Market Power on a Competitive Electricity Market

The aim of the present paper is that of assessing the role of the transmission system in a liberalized electricity market, pointing out that the presence of transmission capacity limits may influence the market outcomes and above all it may make profitable a strategic behaviour rather than a competitive one by one or more producers. From this point of view, the transmission system development becomes crucial and fundamental to ensure an appropriate level of competitiveness on the supply side. So the evaluation of standard economic indicators (i.e. social welfare, consumers' surplus, producers' profit, congestion revenue) shows that if you still accepted the typical planning criteria of the vertically integrated structures to valuate the benefits associated with the network expansion, you would make not negligible mistakes.