Will cross-ownership reestablish market power in the nordic power market?

Abstract

The integration of the power markets in Norway and Sweden in 1996 significantly constrained the major power companies' ability to exercise market power within their national borders. In recent years, however, mergers and reciprocal acquisition of shares have reduced the number of independent players on the Norwegian-Swedish power market. The aim of this paper is to explore to what extent increasing cross-ownership among major power companies in Norway and Sweden might re-establish the market power that was lost when the two national power markets were integrated. The analysis is based on a numerical model, assuming Cournot quantity setting behavior, of the Norwegian-Swedish power market. The simulation results suggest that partial ownership relations between major generators and other power-producing firms tend to increase horizontal market power and thus the market price of electricity.