Energy Efficiency: Efficiency or Monopsony?
AbstractThe cliché in the electricity sector, the “cheapest power plant is the one we don’t build,” seems to neglect the benefits of the energy that plant would generate. Those overall benefits could be countered by benefits to consumers if “not building that plant” was the result of monopsony. A regulator acting as a monopsonist may need to avoid rationing demand at monopsony prices. Subsidizing energy efficiency to reduce electricity demand at the margin can solve that problem, if energy efficiency and electricity use are substitutes. We may not observe these effects if the regulator can set price as well as quantity, lacks buyer-side market power, or is legally precluded from denying generators a reasonable return on capital. Nevertheless, the possibility of monopsony remains significant in light of the debate as to whether antitrust enforcement should maximize consumer welfare or total welfare.
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Bibliographic InfoPaper provided by Resources For the Future in its series Discussion Papers with number dp-09-20.
Date of creation: 21 May 2009
Date of revision:
energy efficiency; monopsony; consumer welfare; total welfare; electricity;
Find related papers by JEL classification:
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
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