In markets with imperfect competition, firms can use their size to charge excessive prices. The use of market power leads to inefficiencies as some people refrain from buying because the product is too expensive and to redistribution from consumers to firms as those who do buy pay too much. Economic analysis of how well competition works in different markets is therefore essential to determine whether public intervention, such as competition law or direct price regulation, is appropriate. Existing methods for estimating competition have significant weaknesses as they are sensitive to assumptions that need to be made about unobservable demand and cost conditions. This project will develop a method for estimating the degree of competition in different markets that is based only on observable conditions and therefore provides more reliable estimates of market competition. The project will then apply these methods to evaluate the extent to which firms exercise market power in the electricity market. In particular, the project will evaluate the pockets of local market power that sometimes arise due to bottlenecks in the electricity network. Such local market power can lead to consumers paying too much for their electricity in some parts of the country, but not in others, and has not really been investigated.