Nonparametric tests for perfect competition: Theory and application to the Nordic wholesale electricity market

This paper develops a simple nonparametric test for perfect competition in markets for homogenous goods. The method only requires data on prices and some aggregate of output. We then generalize the method to account for variable capacity and intertemporal production decisions. We apply the method to a sample of Swedish data from the Nordic wholesale electricity market. Main results show that the data are approximately rationalizable by perfect competition in bidding zones with low ownership concentration of generation assets, but not in bidding zones characterized by high ownership concentration.