For the most part, under current rules, power marketers operate in wholesale markets buying power from one utility and selling it to another utility or wholesale customer. Under restructuring, and as allowed in some pilot programs, power marketers would be allowed to resell power directly to retail customers. The intent of the rule change is to enhance competition in a restructured electricity industry. Whether or not this is true depends on a number of factors including the rules under which power marketers operate and the nature of the transactions costs associated with power markets. Markets and Transactions Costs Markets are simply institutional arrangements which facilitate buying and selling of goods and services.
Transaction costs are simply the costs associated with buying and selling.
For instance, from the firm's perspective transaction costs include the costs of searching for the best or cheapest supplier of inputs or negotiating the terms of complex contracts. If these cost are high enough, the firm will internalize these transactions, leading to vertical integration. If the transaction cost are high, however, then the consumer will rely on past experience or other factors to make purchasing decisions. For small businesses and residential customers the transaction costs may potentially outweigh the benefits of increased competition. Power marketers may be able to lower the transaction costs for the customers and, thus, potentially allowing them to benefit from restructuring.