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Capacity choice, technology mix and market power

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  • Meunier, Guy

Abstract

This paper investigates strategic capacity choices in electricity markets comprised of heterogeneous firms. Long term strategic investments are analyzed assuming that the wholesale market is competitive. There are two technologies available to produce electricity; both are efficient and used at a first best optimum. When not all firms can invest in both technologies, there can be over investment in either of these technologies. It is shown that if the number of firms that can invest in a particular technology is limited, the development of competition solely using the other technology can decrease welfare.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 32 (2010)
Issue (Month): 6 (November)
Pages: 1306-1315

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Handle: RePEc:eee:eneeco:v:32:y:2010:i:6:p:1306-1315

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Web page: http://www.elsevier.com/locate/eneco

Related research

Keywords: Capacity choice Market power Heterogeneity;

References

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  1. Arellano, Maria-Soledad & Serra, Pablo, 2007. "A model of market power in electricity industries subject to peak load pricing," Energy Policy, Elsevier, vol. 35(10), pages 5130-5135, October.
  2. Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-53, October.
  3. Joskow, Paul L & Tirole, Jean, 2007. "Reliability and Competitive Electricity Markets," CEPR Discussion Papers 6121, C.E.P.R. Discussion Papers.
  4. GABSZEWICZ, Jean J. & PODDAR , Sougata, 1995. "Demand Fluctuations and Capacity Utilization under Duopoly," CORE Discussion Papers 1995051, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. James B. Bushnell & Erin T. Mansur & Celeste Saravia, 2008. "Vertical Arrangements, Market Structure, and Competition: An Analysis of Restructured US Electricity Markets," American Economic Review, American Economic Association, vol. 98(1), pages 237-66, March.
  6. Visscher, Michael L, 1973. "Welfare-Maximizing Price and Output with Stochastic Demand: Comment," American Economic Review, American Economic Association, vol. 63(1), pages 224-29, March.
  7. Reynolds, Stanley S. & Wilson, Bart J., 2000. "Bertrand-Edgeworth Competition, Demand Uncertainty, and Asymmetric Outcomes," Journal of Economic Theory, Elsevier, vol. 92(1), pages 122-141, May.
  8. Roques, F.A. & Nuttall, W.J. & Newbery, D.M. & de Neufville, R., 2005. "Nuclear Power: a Hedge against Uncertain Gas and Carbon Prices?," Cambridge Working Papers in Economics 0555, Faculty of Economics, University of Cambridge.
  9. Peter Cramton & Steven Stoft, 2006. "The Convergence of Market Designs for Adequate Generating Capacity," Papers of Peter Cramton 06mdfra, University of Maryland, Department of Economics - Peter Cramton, revised 2006.
  10. Catherine D. Wolfram, 1999. "Measuring Duopoly Power in the British Electricity Spot Market," American Economic Review, American Economic Association, vol. 89(4), pages 805-826, September.
  11. Brown, Gardner, Jr & Johnson, M Bruce, 1969. "Public Utility Pricing and Output under Risk," American Economic Review, American Economic Association, vol. 59(1), pages 119-28, March.
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Cited by:
  1. Guy Meunier, 2012. "Risk aversion and technology portfolios," Working Papers hal-00763358, HAL.

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