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In a competitive market this can be achieved through a normal market process. In a smart market the normal market process is replaced with a centralised mechanism in which producers and consumers submit bids and offer functions to a central market operator. The central market operator carries out a constrained optimisation problem which may include physical constraints. This market process also yields an efficient outcome under the assumption that all players are price-takers. Electricity markets are a form of smart market.

However, this is not always the case. In some markets there is a single dominant firm, or a small group of firms. In either case it is likely that these firms will have some impact on the price or prices at which the good or service is transacted in the market. Introduction to Micro-economics 23 In fact, a firm which faces little or no competition not only will be able to influence the price or prices at which the good or service is transacted in the market but will often also have some control over the way that goods and services are charged for in the market.

In the same way, as we will see shortly, the rate at which electrical energy is delivered depends on both the voltage and the current.

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