AbstractWe study alternative market power mitigation measures in a model where a dominant producer faces a competitive fringe with the same cost structure. We characterise the asset divestment by the dominant firm which achieves the greatest reduction in prices. This divestment entails the sale of marginal assets whose cost range encompasses the post-divestment price. A divestment of this type can be several times more effective in reducing prices than divestments of baseload (or low-cost) assets. We also establish that financial contracts (modeled as Virtual Power Plant schemes) are at best equivalent to baseload divestments in terms of consumer welfare.
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Bibliographic InfoPaper provided by IESE Business School in its series IESE Research Papers with number D/812.
Length: 35 pages
Date of creation: 01 Aug 2009
Date of revision:
Divestments; Virtual power plants; contracts; market power; electricity; antitrust remedies;
Find related papers by JEL classification:
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-11-21 (All new papers)
- NEP-COM-2009-11-21 (Industrial Competition)
- NEP-ENE-2009-11-21 (Energy Economics)
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