The Competitive Effects of Transmission Infrastructure in the Indian Electricity Market

The integration of markets may improve efficiency by lowering costs or reducing local market power. India, seeking to reduce electricity shortages, set up a new power market, in which transmission constraints sharply limit trade between regions. During congested hours, measures competitiveness fall and firms raise bid prices. I use confidential bidding data estimate the supply simulate outcomes with more capacity. Counterfactual simulations show that expansion increases surplus 22 percent, enough justify investment. One-third this gain is due sellers’ response integrated grid. (JEL H54, L13, L94, O13, Q41)