Defining electricity markets: an arbitrage cost approach

Market definition is a crucial component of antitrust policy. There is, how ever, no universally accepted method of carrying out market definition. Whi le several approaches have been presented in the literature, each has its s hare of drawbacks. This paper suggests that a modeling technique based upon the theory of arbitrage is well suited to answering this question. After t he empirical approach is presented, it is used to calculate antitrust marke t definitions between electricity hubs in the American West. (C) 2001 Elsev ier Science B.V. All rights reserved.