Regulators Designing Markets State utility regulators and industry lobbyists are preoccupied with the design of intrastate electricity markets. Markets are not designed. They evolve naturally as customers and suppliers make exchanges free of government direction. Contracting and trading opportunities are exploited. Contract standardization and market institutions evolve to cope with problems and exploit new opportunities.
Markets grow from the bottom up.
The most pertinent example of how markets self-organize is the natural gas market. Until a decade ago, the gas transmission grid was balkanized, much as the power grid is today. Now, natural gas flows over an integrated network of pipelines whose connection structure emerged through decentralized interactions among traders seeking profitable opportunities. Arbitrage drove prices to a narrow range. Natural gas is now priced so accurately across all points of the pipeline network that prices everywhere fall within arbitrage limits.