This paper develops a theoretical framework to analyze the link between real-time and dayahead competition in a hydro-based wholesale electricity market. Predictions of the model are tested on a detailed data set of trades and prices from the Nordic power exchange, Nord Pool. We study market performance before and after a reform that increased the number of price areas (local markets) in Sweden, and reject the hypothesis of perfect competition in some of the Swedish price areas. This suggests that firms were able to exercise some local market power during the sample period.