We study the role of vertical structure in determining generating capacities, retail prices, and welfare in the electricity industry. Welfare is maximized if market liberalization is combined with vertical separation. The driving force behind this result is the risk of rent extraction faced by competing integrated generators, which induces excessively high investments and retail prices. Under vertical separation, retailers set lower retail prices and generators invest less, thereby driving up wholesale prices and shifting rents from retailers to generators. Vertical integration may be desirable, though, if supply security is at stake.
|Number of pages||37|
|Publication status||Published - 2017|
|Event||9th Swedish Workshop on Competition & Public Procurement Research - Swedish Competition Authority, Stockholm, Sweden|
Duration: 2 Nov 2017 → 2 Nov 2017
Conference number: 9
|Workshop||9th Swedish Workshop on Competition & Public Procurement Research|
|Location||Swedish Competition Authority|
|Period||02/11/2017 → 02/11/2017|
Bibliographical noteCBS Library does not have access to the material
Boom, A., & Buehler, S. (2017). Restructuring the Electricity Industry: Vertical Structure and the Risk of Rent Extraction. Paper presented at 9th Swedish Workshop on Competition & Public Procurement Research, Stockholm, Sweden.