Retail Competition and Electricity Contracts
AbstractLong-term contracts for electricity can counter market power and reduce prices in short-term markets. If electricity retailers face competition, however, companies signing long-term contracts are exposed to the risk that a fall in short-term prices would allow rivals to buy on the spot market and undercut them. Could this lead to less contracting and higher prices? This paper combines a model of electricity retailing and a Cournot model of competition in the wholesale markets to estimate the size of this effect, and finds that it could raise wholesale prices by two or three percent.
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Bibliographic InfoPaper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0406.
Date of creation: Jan 2004
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Note: CMI33, IO
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Electricity; contract markets; retail competition;
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- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
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