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Long-term contract auctions and market power in regulated power industries

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  • Soledad Arellano, M.
  • Serra, Pablo

Abstract

A number of countries with oligopolistic power industries have used marginal cost pricing to set the price of energy for small customers. This course of action, however, does not necessarily ensure an efficient outcome when competition is imperfect. The purpose of this paper is to study how the auction of long-term contracts could reduce market power. We do so in a two-firm, two-technology, linear-cost, static model where demand is summarized by a price inelastic load curve. In this context we show that the larger the proportion of total demand auctioned in advance, the lower are both the contract and the average spot price of energy.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 38 (2010)
Issue (Month): 4 (April)
Pages: 1759-1763

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Handle: RePEc:eee:enepol:v:38:y:2010:i:4:p:1759-1763

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

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Keywords: Electricity Market power Long-term auctions;

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, Elsevier, vol. 35(10), pages 5130-5135, October.
  2. Matti Liski & Juan-Pablo Montero, 2005. "Forward trading and collusion in oligopoly," Working Papers, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research 0506, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  3. Allaz Blaise & Vila Jean-Luc, 1993. "Cournot Competition, Forward Markets and Efficiency," Journal of Economic Theory, Elsevier, Elsevier, vol. 59(1), pages 1-16, February.
  4. Crew, Michael A & Fernando, Chitru S & Kleindorfer, Paul R, 1995. "The Theory of Peak-Load Pricing: A Survey," Journal of Regulatory Economics, Springer, Springer, vol. 8(3), pages 215-48, November.
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Cited by:
  1. Moreno, R. & Barroso, L.A. & Rudnick, H. & Mocarquer, S. & Bezerra, B., 2010. "Auction approaches of long-term contracts to ensure generation investment in electricity markets: Lessons from the Brazilian and Chilean experiences," Energy Policy, Elsevier, Elsevier, vol. 38(10), pages 5758-5769, October.
  2. Serra, Pablo, 2013. "Contract market power and its impact on the efficiency of the electricity sector," Energy Policy, Elsevier, Elsevier, vol. 61(C), pages 653-662.

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