Where the generation market is dominated by an incumbent, as in France (where the state-owned EdF controls about 95% of generation), or in Belgium (where the private company Electrabel has a similar share), it is clearly easy to demonstrate SMP. Tacit regulation, in which the threat of an investigation for abuse of market power, may then be sufficient. Many electricity markets are, however, characterised by the largest generator having less than 40% of the market, while still remaining fairly concentrated. The concept of single dominance is then not sufficient, and something more inclusive is required. Under Article 82, a dominant position can be held by one or more undertakings ('collective dominance'). The jurisprudence on establishing collective dominance is still evolving, but it is now accepted that "a dominant position may be held by two or more economic entities which are legally and economically independent of each other." (Guidelines, 3.1.2.1).

The Court of First Instance gives as an example of conditions conducive to collective dominance: “the relationship of interdependence existing between the parties to a tight oligopoly within which, in a market with the appropriate characteristics, in particular in terms of market concentration, transparency and product homogeneity, those parties are in a position to anticipate one another’s behaviour and are therefore strongly encouraged to align their conduct in the market, in particular in such a way as to maximise their joint profits by restricting production with a view to increasing prices.” (Case T102/96, Gencor v Commission [1999] ECR II-753).

This list of conditions conducive to collective dominance maps almost exactly on to the characteristics of wholesale electricity markets. Consider as the leading example the English Electricity Pool, set up as the wholesale market for England and Wales at the time of restructuring and privatisation in 1989/90. The Pool continued until it was replaced by the New Electricity Trading Arrangements in 2001. The Pool was a compulsory, day-ahead, last-price auction in which generators had firm rights to transmission but no firm obligations to generate. Generators submitted bids the day before and the System Marginal Price (SMP) was set each half hour as the bid price of the most expensive unconstrained generation unit called on to operate. Unconstrained generators were all paid the same SMP plus a capacity payment, making up the Pool Purchase Price, PPP. Generators available but not dispatched also received the capacity payments, while constrained generators received their bid price, if they were required to generate within an import-constrained zone and bid above the SMP, or their lost profit (SMP less bid price) if they were in an export-constrained zone. The prices for each half-hour were published by 5pm the day before so that consumers could adjust any consumption decisions in the light of these prices.

The Pool prices were overlaid with financial contracts to reduce risk. The typical contract was a two-sided Contract for Differences (CfD), with a strike price s for a volume M MWh of electricity. If the Pool price were p in that time period, the buyer paid p per unit to the Pool and $ (s-p)M $ to the company issuing the contract, thus effectively ensuring delivery of the contracted quantity of electricity at the strike price. The generator similarly received p per unit dispatched from the Pool, but was assured of receiving in total the strike price per unit contracted. It is readily proved that the best bid for a fully contracted generator is the marginal