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Fortnightly Magazine - July 1 1996
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Curbing Market Power

or Power Markets?

In their article, "Curbing Market Power: The Larger the Better" (Apr. 15, 1996, p. 10), Christopher D. Seiple and Douglas M. Logan show that market-share indices can be derived from commercially available databases. The authors reference their soon-to-be-released study, U.S. Electric Utility Industry Mergers and Acquisitions, as a source for further market-power assessments.

The topic is timely. The U.S. Justice Department has long been interested in measuring market power, in conjunction with antitrust considerations. The seemingly imminent deregulation of large portions of the electric utility industry has added the Federal Energy Regulatory Commission (FERC), state regulatory commissions, and customer groups to the ranks of those needing to understand market power. Electric companies themselves have a renewed interest, because although market power means greater profits, too much will draw the ire of the aforementioned parties.

Economists have long tried to summarize the distribution of market share among firms in a single index, such as the Herfindahl-Hirschman Index (HHI). Seiple and Logan have continued this tradition by applying the HHI to the California electric market to examine market power.

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