Abstarct: For one decade ago, virtual divestiture has been used as a suitable alternative for physical divestiture of generation assets of dominant producers in electricity markets. Market monitoring unit concerns about potential impact of such market power mitigation policies. To this end, this paper develops an equilibrium-baxsed simulation tool for ex-ante analysis of impact of financial virtual divestiture on market power mitigation in a day-ahead market. We consider that generation assets of a dominant producer are partly constrained by financial virtual divestiture. We model the offering problem of this dominant producer in the day-ahead market as bi-level optimization problem. In upper-level problem, the dominant producer derives optimal strategy of capacity withholding that is subject to inter-temporal constraints of its generating units and conditions stated in the virtual divestiture. In lower-level problem, market operator clears the day-ahead market on an hourly basis. We recast the bi-level optimization problem as a mathematical programming with equilibrium constraints problem and convert it to a mixed integer linear programming problem by some linearization techniques. We through a case study show how the application of this policy may control market power in the day-ahead market. The numerical results demonstrate that the dominant producer can exploit technological diversification of own generating units to exercise market power, even in the presence of virtual divestiture as a market power mitigation policy.