A number of empirical studies have shown that the market power exercised by the California generators was a significant cause for the high prices of wholesale electricity in California in 2000. Some studies have found that the generators’ behavior was consistent with unilateral market power as opposed to collusion, particularly under high-demand conditions. The intuition for this result is that the California market was characterized by price-inelastic demand and short-term capacity constraints. Therefore, firms could profitably withhold capacity unilaterally without the need to engage in collusive behavior. This paper shows that the California generators were indeed withholding significant amounts of capacity, even though that capacity was capable of providing energy at a cost below the prevailing price. However, we also show that the generators behavior varied with demand conditions. In particular, we find that the behavior was more collusive during periods with intermediate levels of demand (i.e. when demand was neither too low nor too high), while it was consistent with unilateral pricing in very low and very high demand hours. We compute withholding and conjectural variation parameters by deciles of demand, and find that both measures are higher on average for the middle deciles relative to the low and high deciles.

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