Abstract Twenty-five years ago, the electricity industry was largely made up of vertically integrated monopolies. Smaller utilities without their own generation bought their power under contract from a larger firm, or simply paid the tariff that the generator set each year for its power sales. When the utilities with generation wished to trade power among themselves, they typically did so on a split-savings basis. Each utility would report its marginal cost, and the price would be the average of the two figures, thus giving each utility half of the gains from trade. Even where there were ‘power pools’ involving a large number of generators, they operated as clubs, rather than as markets.