The Competitive Effects of Transmission Capacity in a Deregulated Electricity Industry
AbstractIn an unregulated electricity generation market, the capacity of transmission lines will determine the degree to which generators in different locations compete with one another. We show, however, that there may be no relationship between the effect of a transmission line in spurring competition and the actual electricity that flows on the line in equilibrium. We also demonstrate that limited transmission capacity can give a firm the incentive to restrict its output in order to congest transmission into its area of dominance. As a result, relatively small investments in transmission may yield surprisingly large payoffs in terms of increased competition. We demonstrate these effects in the context of the deregulated California electricity market.
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Bibliographic InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 13145.
Date of creation: 01 Jun 2000
Date of revision:
Publication status: Published in RAND Journal of Economics, Summer 2000, vol. 31 no. 2
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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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Other versions of this item:
- Severin Borenstein & James. Bushnell & Steven Stoft, 2000. "The Competitive Effects of Transmission Capacity in A Deregulated Electricity Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 294-325, Summer.
- Severin Borenstein & James Bushnell & Steven Stoft, 1997. "The Competitive Effects of Transmission Capacity in a Deregulated Electricity Industry," NBER Working Papers 6293, National Bureau of Economic Research, Inc.
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