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Barring consumers from the electricity network might improve welfare

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Author Info

  • Bert Willems

    ()
    (K.U.Leuven, C.E.S., Energy, Transport and Environment)

Abstract

A monopolist supplies a homogenous good to two geographically separated markets. Production costs and demand conditions are di?erent in each market. A line with a limited transport capacity connects both markets. The paper compares two institutional frameworks: (1) exclusive access to the line is granted to the monopolist (2) access to the line is auctioned to the monopolist and consumers. It derives the monopolist's strategy, and illustrates the result with examples. In general, it is not clear-cut which regime gives the highest total surplus. For linear demand functions exclusive access is superior to auctioning, if transport capacity is small, cost differences are large and demand conditions similar.

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File URL: http://www.econ.kuleuven.ac.be/ew/academic/energmil/downloads/ETE-WP-2002-13.PDF
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Bibliographic Info

Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment in its series Energy, Transport and Environment Working Papers Series with number ete0213.

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Length: 34 pages
Date of creation: Dec 2002
Date of revision:
Handle: RePEc:ete:etewps:ete0213

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Web page: http://www.econ.kuleuven.be/ew/academic/energmil
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Related research

Keywords: Electricity; Monopoly; Transmission; Congestion; Price discrimination; Unbundling; Deregulation;

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Cited by:
  1. Guido Pepermans & Bert Willems, 2004. "Ramsey Pricing in a Congested Network with Market Power in Generation: A Numerical Illustration for Belgium," Energy, Transport and Environment Working Papers Series ete0408, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
  2. Kupper, G. & Willems, Bert, 2007. "Arbitrage in Energy Markets: Competing in the Incumbent's Shadow," Discussion Paper 2007-094, Tilburg University, Center for Economic Research.

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