The distortion,effect of peculiar velocities on the power spectrum and
correlation function of galaxies in redshift space is investigated ov
er a large range of scales, from approximately 1 to 400 h-1 Mpc, using
large-scale computer simulations of cold dark matter models. The resu
lts are compared with observations of optical and IRAS galaxies. The d
istortion effect is observed to be large; it significantly changes the
shape of the power spectrum. For OMEGA = 1, the redshift space power
spectrum is enhanced by a factor of nearly 2 over the real space spect
rum on large scales, and is decreased by a factor of about 5 on small
scales, resulting in a considerably steeper spectrum in redshift space
than in real space. A direct comparison of observations and simulatio
ns in redshift space reveals that, contrary to previous suggestions, t
he power spectrum of IRAS galaxies, as well as optical galaxies, is co
nsistent with the spectrum of the standard cold dark matter (CDM) mode
l. The problems that an OMEGA = 1 CDM model currently faces, such as t
oo large perculiar velocities on small scales, may be related more to
the high value of OMEGA in the model rather than to the shape of the s
pectrum. A low-density CDM model is also investigated and found to be
consistent with the data. It appears that the redshift-space power spe
ctrum alone is rather insensitive to OMEGA for CDM models for scales l
ess-than-or-equal-to 200 h-1 Mpc.