[londons_explore]

In a properly working market, at the point the power grid fails due to lack of supply, the spot price should be infinitely high.

Given that, no sane supplier would refuse to sell given they would be making unlimited profit. Hey, I'd be connecting up my windup flashlight if I got paid $999,999,999 per kilowatt hour.

The issue must be a bad market. Either people aren't paying for what they use, there isn't sufficient transmission capacity to have a sufficiently large market to avoid local monopolies, there are price caps or floors, the market isn't fast enough (no automated trading), or new entrants are limited from participating.

In a correctly working market, electricity never fails because all people using electricity at the time of the failure would be paying an infinitely high price, and therefore be bankrupt.

[alextheparrot]

Maybe the utility derived from having electricity doesn't make the good actually worth the prices you are saying? A seller makes no money if they price their good so far above market that there is no demand for it, not infinite.

[Callmenorm]

You're missing his point. Prices steadily go up as demand increases so suppliers bring on more (expensive) capacity to meet. You never get to the failure point unless demand exceeds all possible supply capacity. He just took this argument to the extreme.

[alextheparrot]

I believe I completely understood his point and my comment responded to that the price does not approach infinity, because no one will logically pay a price approaching infinity. The root cause of this is that I will only purchase something if I think the utility obtained from having it is equal to or greater than the utility my currency could purchase elsewhere. I don't have a perfectly inelastic demand for electricity.

Even if a good is quite scarce (Such as electricity in a blackout), the price is dependent on demand. Low supply does not inherently make a good expensive.

[euyyn]

The demand isn't going to increase in a blackout, it's the supply that diminishes, bringing price up. But the curve isn't asymptotic: the price doesn't go to infinity as the supply goes to zero.

[pjc50]

This is the "free market cannot fail, it can only be failed" argument of the day.