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Vertical Arrangements, Market Structure, and Competition: An Analysis of Restructured US Electricity Markets Author info | Abstract | Publisher info | Download info | Related research | Statistics James B. Bushnell
Erin T. Mansur
Celeste Saravia
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This paper examines vertical arrangements in electricity markets. Vertically integrated wholesalers, or those with long-term contracts, have less incentive to raise wholesale prices when retail prices are determined beforehand. For three restructured markets, we simulate prices that define bounds on static oligopoly equilibria. Our findings suggest that vertical arrangements dramatically affect estimated market outcomes. Had regulators impeded vertical arrangements (as in California), our simulations imply vastly higher prices than observed and production inefficiencies costing over 45 percent of those production costs with vertical arrangements. We conclude that horizontal market structure accurately predicts market performance only when accounting for vertical structure. (JEL L11, L13, L94)
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Article provided by American Economic Association in its journal American Economic Review .
Volume (Year): 98 (2008)
Issue (Month): 1 (March)
Pages: 237-66
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Handle: RePEc:aea:aecrev:v:98:y:2008:i:1:p:237-66Contact details of provider: Email: Web page: http://www.aeaweb.org/aer/ More information through EDIRC
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