From Structural Indices to Behavioral Benchmarks: A Comprehensive Assessment of Market Power in Pakistan's Evolving Electricity Market Considering Transmission Constraints

ABSTRACT

This study evaluates market power in Pakistan's evolving electricity market, considering underlying transmission network constraints, using 10 structural and behavioral indices—a significant expansion beyond the single existing study that examined only four structural indices. Anticipating a shift toward day‐ahead auctions, we combine capacity‐based structural analysis with bid‐based behavioral modeling. Structural indices generally show low concentration, though the Herfindahl–Hirschman Index indicates moderate levels. Our behavioral Lerner Index (LI) assessment, a first for Pakistan, reveals competitive conditions (LI = 0.39) under cost‐based generation, but a substantial 62% increase to 0.63 under strategic bidding scenarios. Critically, temporal disaggregation exposes intraday volatility masked by daily averages: LI rises from 0.17 during off‐peak hours (h02–h07) to 0.53 at peak (h12–h17), and reaches an extreme of 0.80 at the maximum‐price hour (h15). This granularity confirms that market power risks are pronounced during high‐price periods, whereas aggregate averages significantly dilute these acute risks. The study demonstrates that bid‐based modeling uncovers risks missed by structural analysis alone, offering vital guidance for regulators preparing for competitive market implementation. Finally, our framework provides a replicable template for monitoring liberalizing electricity markets, particularly in transitional economies where strategic bidding behaviors may emerge alongside structural reforms.