Abstract
This paper studies how competition and vertical structure jointly determine generating capacities, retail prices, and welfare in the electricity industry. Analyzing a model in which demand is uncertain and retailers must commit to retail prices before they buy electricity in the wholesale market, we show
that welfare is highest if competition in generation and retailing is combined with vertical separation. Vertically integrated generators choose excessively high retail prices and capacities to avoid rent extraction in the wholesale market when their retail demand exceeds their capacity. Vertical separation
eliminates the risk of rent extraction and yields lower retail prices.
that welfare is highest if competition in generation and retailing is combined with vertical separation. Vertically integrated generators choose excessively high retail prices and capacities to avoid rent extraction in the wholesale market when their retail demand exceeds their capacity. Vertical separation
eliminates the risk of rent extraction and yields lower retail prices.
| Original language | English |
|---|---|
| Publication date | 2018 |
| Number of pages | 49 |
| Publication status | Published - 2018 |
| Event | The 45th Annual Conference of the European Association for Research in Industrial Economics. EARIE 2018 - Athens College, Athens, Greece Duration: 31 Aug 2018 → 2 Sept 2018 Conference number: 45 http://www.earie2018.org/ |
Conference
| Conference | The 45th Annual Conference of the European Association for Research in Industrial Economics. EARIE 2018 |
|---|---|
| Number | 45 |
| Location | Athens College |
| Country/Territory | Greece |
| City | Athens |
| Period | 31/08/2018 → 02/09/2018 |
| Internet address |
Keywords
- Electricity
- Generating capacities
- Vertical integration
- Monopoly
- Competition