Restructuring the Electricity Industry: Vertical Structure and the Risk of Rent Extraction
Series
Department of Economics Working Papers
Type
working paper
Date Issued
2014
Author(s)
Abstract
We study the role of vertical structure in determining generating capacities and retail prices in the electricity industry. Allowing for uncertain demand, we compare three market configurations: (i) integrated monopoly, (ii) integrated duopoly with wholesale trade, and (iii) separated duopoly with wholesale trade. We find that equilibrium capacities and retail prices are such that welfare is highest (lowest) under separated (integrated) duopoly. The driving force behind this result is the risk of rent extraction faced by competing integrated Generators on the wholesale market. Our analysis suggests that vertical structure plays an important role in determining generating capacities and retail prices.
Language
English
Keywords
Electricity
Investments
Generating Capacities
Vertical Integration
Monopoly and Competition.
HSG Classification
contribution to scientific community
Refereed
No
Publisher place
Copenhagen
Number
2
Subject(s)
Eprints ID
237418
File(s)![Thumbnail Image]()
open.access
Name
boom.pdf
Size
600.18 KB
Format
Adobe PDF
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