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‘Retail Electricity Competition’

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Author Info
Joskow, P.
Tirole, J.

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Abstract

We explore the implications of load profiling of consumers whose traditional meters do not allow for measurement of their real time consumption. We find the competitive equilibrium does not support the Ramsey two-part tariff. By contrast, when consumers are billed on real time prices and consumption, retail competition yields the Ramsey prices even when consumers can only partially respond to variations in real time prices. We then examine the incentive competitive retailers have to install one of two types of advanced metering equipment. Competing retailers overinvest in real time meters compared to the Ramsey optimum, but investment incentives are constrained optimal given load-profiling and retail competition. Finally, we consider the effects of physical limitations on the ability of system operators to cut off individual customers. Competing retailers have no incentive to determine the aggregate value of non-interruption of consumers, preferring instead to free-ride on other retailers serving the same zone.

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File URL: http://www.econ.cam.ac.uk/electricity/publications/wp/ep44.pdf
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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0430.

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Length: 41
Date of creation: May 2004
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Handle: RePEc:cam:camdae:0430

Note: CMI44, IO
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Web page: http://www.econ.cam.ac.uk/index.htm

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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.:
  1. Severin Borenstein & Stephen P. Holland, 2003. "On the Efficiency of Competitive Electricity Markets With Time-Invariant Retail Prices," NBER Working Papers 9922, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. JOSKOW, Paul & TIROLE, Jean, 2004. "Reliability and Competitive Electricity Markets," IDEI Working Papers 310, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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  3. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-31, July. [Downloadable!] (restricted)
  4. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  5. d'Aspremont, Claude & Gerard-Varet, Louis-Andre, 1979. "Incentives and incomplete information," Journal of Public Economics, Elsevier, vol. 11(1), pages 25-45, February. [Downloadable!] (restricted)
  6. Rochet, Jean-Charles & Stole, Lars A, 2002. "Nonlinear Pricing with Random Participation," Review of Economic Studies, Blackwell Publishing, vol. 69(1), pages 277-311, January.
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Cited by:
(explanations, 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.)

  1. Paul L. Joskow, 2006. "Competitive Electricity Markets And Investment In New Generating Capacity," Working Papers 0609, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research. [Downloadable!]
  2. JOSKOW, Paul & TIROLE, Jean, 2004. "Reliability and Competitive Electricity Markets," IDEI Working Papers 310, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
    Other versions:
  3. Tooraj Jamasb & Michael Pollitt, 2005. "Electricity Market Reform in the European Union - Review of Progress toward Liberalization & Integration," Working Papers 0503, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research. [Downloadable!]
  4. Machiel Mulder & Victoria Shestalova & Marc Lijesen, 2005. "Vertical separation of the energy-distribution industry," CPB Documents 84, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  5. Anette Boom, 2007. "Vertically Integrated Firms' Investments in Electricity Generating Capacities," CIE Discussion Papers 2007-14, University of Copenhagen. Department of Economics. Centre for Industrial Economics. [Downloadable!]
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