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Electricity prices in a mixed thermal and hydropower system

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Author Info
Hoel, Michael () (Dept. of Economics, University of Oslo)
Abstract

When a monopolistic hydro producer interacts with a competitive thermal fringe, the short-run revenue function of the hydro monopolist is non-concave. This implies that even if the demand function is stationary, equilibrium prices may fluctuate through the year. For given capacities, both hydro and thermal producers are better off under such an outcome than under the competitive outcome with constant prices, while consumers are worse off. Prices may fluctuate through the year also in the long-run equilibrium where capacities are endogenous. In such an equilibrium the hydropower monopoly will get a lower profit than it would have gotten had it been a price taker.

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File URL: http://www.oekonomi.uio.no/memo/memopdf/memo2804.pdf
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Publisher Info
Paper provided by Oslo University, Department of Economics in its series Memorandum with number 28/2004.

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Length: 31 pages
Date of creation: 29 Nov 2004
Date of revision:
Handle: RePEc:hhs:osloec:2004_028

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Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
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Web page: http://www.oekonomi.uio.no/indexe.html
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Related research
Keywords: Electricity prices; Hydropower;

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Find related papers by JEL classification:
L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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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.:
  1. Amundsen, E.S. & Bergman, L., 2000. "Will Cross-Ownership Reestablish Market Power in the Nordic Power Market?," Norway; Department of Economics, University of Bergen 1900, Department of Economics, University of Bergen.
    Other versions:
  2. Paul L. Joskow, 2001. "California's Electricity Crisis," NBER Working Papers 8442, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Førsund, Finn R. & Hoel, Michael, 2004. "Properties of a non-competitive electricity market dominated by hydroelectric power," Memorandum 07/2004, Oslo University, Department of Economics. [Downloadable!]
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  4. Severin Borenstein, 2002. "The Trouble with Electricity Markets: Understanding California's Restructuring Disaster," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 191-211, Winter. [Downloadable!] (restricted)
  5. Garcia, Alfredo & Reitzes, James D & Stacchetti, Ennio, 2001. "Strategic Pricing when Electricity is Storable," Journal of Regulatory Economics, Springer, vol. 20(3), pages 223-47, November. [Downloadable!] (restricted)
  6. Joskow, P. & Edward Kahn, 2002. "A Quantitative Analysis of Pricing Behavior In California’s Wholesale Electricity Market During Summer 2000," Cambridge Working Papers in Economics 0211, Faculty of Economics, University of Cambridge. [Downloadable!]
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  7. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May. [Downloadable!] (restricted)
  8. Spear, Stephen E., 2003. "The electricity market game," Journal of Economic Theory, Elsevier, vol. 109(2), pages 300-323, April. [Downloadable!] (restricted)
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  9. Newbery, David M., 2002. "Problems of liberalising the electricity industry," European Economic Review, Elsevier, vol. 46(4-5), pages 919-927, May. [Downloadable!] (restricted)
  10. Crampes, C. & Moreaux, M., 2001. "Water resource and power generation," International Journal of Industrial Organization, Elsevier, vol. 19(6), pages 975-997, May. [Downloadable!] (restricted)
  11. Stefan Ambec & Joseph Doucet, 2003. "Decentralizing hydro power production," Canadian Journal of Economics, Canadian Economics Association, vol. 36(3), pages 587-607, August. [Downloadable!] (restricted)
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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. Olli Kauppi & Matti Liski, 2008. "An Empirical Model of Imperfect Dynamic Competition and Application to Hydroelectricity Storage," Working Papers 0811, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research. [Downloadable!]
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