Evaluation of market power and collusion in large power networks using structural decomposition of the electricity market

In electricity markets, evaluating collusion and market power is a critical challenge for network operators, as such behaviors can disrupt fair competition, induce price volatility, and reduce market efficiency. Effective methods are therefore required to identify and quantify the influence of each market participant on the profits of others. This study aims to assess collusion and market power in large-scale power systems through structural analysis, addressing gaps left by previous research. The proposed methodology relies on two lemmas to model market behavior. Lemma 1 quantifies the effects of various factors on local price changes and generation capacities, while Lemma 2 evaluates their impact on the profit variations of generation units. Using the matrix derived from Lemma 2, which captures profit responses to marginal unit price changes, collusion and market power across the network are assessed. Additionally, three new indicators are introduced to measure market power and collusion in large networks. The approach is applied to a 300-bus system, and detailed analysis demonstrates that changes in generation pricing strategies can substantially influence market power and collusive behavior, providing regulators with a tool for proactive market monitoring and intervention.