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The aim of this paper is to develop a methodology for measuring the exercise of potential market power in liberalized electricity markets. The authors therefore investigate producer behavior in the context of electricity pricing with respect to fundamental Time-dependent Marginal Cost (TMC), i.e. CO2- and fuel cost. In doing so, they do not - in contrast to most current approaches to market power investigation - rely on an estimate of the entire generation cost, which inevitably suffers from the lack of appropriate available data. Applying an analytical model of a day-ahead electricity market, they derive work-on rates, which provide information about the impact of TMC variations on electricity prices in the market constellations of perfect competition, quasi-monopoly and monopoly.
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