The integration of markets may improve efficiency by lowering costs or reducing local market power. India, seeking to reduce electricity shortages, set up a new power market, in which transmission constraints sharply limit trade between regions. During congested hours, measures of market competitiveness fall and firms raise bid prices. I use confidential bidding data to estimate the costs of power supply and simulate market outcomes with more transmission capacity. Counterfactual simulations show that transmission expansion increases market surplus by 22 percent, enough to justify the investment. One-third of this gain is due to sellers' response to a more integrated grid.
"The Competitive Effects of Transmission Infrastructure in the Indian Electricity Market."
American Economic Journal: Microeconomics,
National Government Expenditures and Related Policies: Infrastructures; Other Public Investment and Capital Stock
Oligopoly and Other Imperfect Markets
Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
Energy: Demand and Supply; Prices