Competition between regulated and non-regulated generators on electric power networks
AbstractThe ongoing restructuring of the electricity sectors in many countries raises the policy question of to what extent the public generating assets should be privatized and what the objective function of any remaining public generation companies should be. We analyze the optimal regulatory policy in the context of a mixed wholesale electricity market in which a private and a public generator engage in Cournot competition. In a standard industry without externalities, instructing the public firm to maximize profits instead of total social surplus in similar settings may turn out to be welfare improving. In an electricity market, however, the possibility of congestion in the transmission network and externalities between generators stemming from loop flows change the nature of equilibria and the optimal regulatory policy dramatically. Not only that instruction of pure welfare maximization is not a part of optimal regulatory policy in many instances, instruction of profit maximization is not a part of optimal regulatory policy, except in one case, either. We also extend the literature by allowing the public firm to maximize not only its profits or social welfare, but any convex combination of the two, as well as considering cost asymmetries and shadow cost of public funds. Furthermore, our framework also applies to a wholesale power industry where regulated private firms and unregulated private firms are competing, rather than public and private firms.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 376.
Date of creation: 30 Apr 2001
Date of revision:
electricity markets; mixed markets; regulation; competition;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations
- H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
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.:
- De Fraja, Gianni, 1995.
"Regulation and Access Pricing with Asymmetric Information,"
CEPR Discussion Papers
1122, C.E.P.R. Discussion Papers.
- De Fraja, Gianni, 1999. "Regulation and access pricing with asymmetric information," European Economic Review, Elsevier, vol. 43(1), pages 109-134, January.
- Gianni De Fraja, . "Regulation and Access Pricing with Asymmetric Information," Discussion Papers 95/5, Department of Economics, University of York.
- Cremer, H. & Marchand, M. & Thisse, J.-F., 1987.
"The public firm as an instrument for regulating an oligopolistic market,"
CORE Discussion Papers
1987010, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Cremer, Helmuth & Marchand, Maurice & Thisse, Jacques-Francois, 1989. "The Public Firm as an Instrument for Regulating an Oligopolistic Market," Oxford Economic Papers, Oxford University Press, vol. 41(2), pages 283-301, April.
- 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.
- Berenstein, Severin & Bushnell, James & Stoft, Steven, 2000. "The Competitive Effects of Transmission Capacity in a Deregulated Electricity Industry," Staff General Research Papers 13145, Iowa State University, Department of Economics.
- 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.
- Frank A. Wolak & Robert H. Patrick, 2001. "The Impact of Market Rules and Market Structure on the Price Determination Process in the England and Wales Electricity Market," NBER Working Papers 8248, National Bureau of Economic Research, Inc.
- Matsumura, Toshihiro, 1998. "Partial privatization in mixed duopoly," Journal of Public Economics, Elsevier, vol. 70(3), pages 473-483, December.
- de Fraja, Giovanni & Delbono, Flavio, 1990. " Game Theoretic Models of Mixed Oligopoly," Journal of Economic Surveys, Wiley Blackwell, vol. 4(1), pages 1-17.
- Joskow, Paul L & Tirole, Jean, 1999. "Transmission Rights and Market Power on Electric Power Networks I: Financial Rights," CEPR Discussion Papers 2093, C.E.P.R. Discussion Papers.
- SMEERS, Yves & WEI, Jing-Yuan, 1997. "Do we need a power exchange if there are enough power marketers ?," CORE Discussion Papers 1997060, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- de Fraja, Giovanni & Delbono, Flavio, 1989. "Alternative Strategies of a Public Enterprise in Oligopoly," Oxford Economic Papers, Oxford University Press, vol. 41(2), pages 302-11, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.