Alexander Galetovic () (Universidad de Chile) JUAN RICARDO INOSTROZA () (AES Gener S.A.)
Abstract
There are at least two ways of fixing high voltage transmission tolls. One is to regulate them in standard fashion; another is to allocate new transmission lines in competitive auctions to the bidder offering the lowest toll. In this paper we show that expected tolls are considerably lower if lines are auctioned. Auctions dominate regulation for three reasons. First, bidder competition ensures lower expected tolls. Second, they increase the regulator's bargaining power. Third, if, as in Argentina, project users are allowed to bid and build the line, they can induce even more intense competition. We use our theoretical model to analyze the auction for the fourth Comahue line in Argentina. We show that, had the toll been regulated, it would have been at least 61% higher.
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Article provided by Ilades-Georgetown University, Economics Department in its journal Revista de Analisis Economico.
Find related papers by JEL classification: L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Jeremy Bulow & Paul Klemperer, 1994.
"Auctions vs. Negotiations,"
NBER Working Papers
4608, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Roger B. Myerson, 1978.
"Optimal Auction Design,"
Discussion Papers
362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]