  The main goal of a sequential two-stage electricity market -- e.g., day-ahead
and real-time markets -- is to operate efficiently. However, the price
difference across stages due to inadequate competition and unforeseen
circumstances leads to undesirable price manipulation. To mitigate this, some
Independent System Operators (ISOs) proposed system-level market power
mitigation (MPM) policies in addition to existing local policies. These
policies aim to substitute noncompetitive bids with a default bid based on
estimated generator costs. However, these policies may lead to unintended
consequences when implemented without accounting for the conflicting interest
of participants. In this paper, we model the competition between generators
(bidding supply functions) and loads (bidding quantity) in a two-stage market
with a stage-wise MPM policy. An equilibrium analysis shows that a real-time
MPM policy leads to equilibrium loss, meaning no stable market outcome (Nash
equilibrium) exists. A day-ahead MPM policy, besides, leads to a
Stackelberg-Nash game with loads acting as leaders and generators as followers.
In this setting, loads become winners, i.e., their aggregate payment is always
less than competitive payments. Moreover, comparison with standard market
equilibrium highlights that markets are better off without such policies.
Finally, numerical studies highlight the impact of heterogeneity and load size
on market equilibrium.
