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Vertical Integration and Capacity Investment in the Electricity Sector

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  • Brown, David P.

    (University of Alberta, Department of Economics)

  • Sappington, David E.M.

    (University of Florida)

Abstract

We examine the incentives for and the effects of vertical integration in the electricity sector. We find that vertical integration generally reduces retail prices and increases industry capacity investment, consumer surplus, and total welfare. Unilateral vertical integration is pro table, so it arises in equilibrium. However, ubiquitous vertical integration can reduce aggregate industry pro fit.

Suggested Citation

  • Brown, David P. & Sappington, David E.M., 2020. "Vertical Integration and Capacity Investment in the Electricity Sector," Working Papers 2020-5, University of Alberta, Department of Economics.
    • Handle: RePEc:ris:albaec:2020_005
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    Cited by:

    1. David P. Brown & David E. M. Sappington, 2023. "Employing gain-sharing regulation to promote forward contracting in the electricity sector," Journal of Regulatory Economics, Springer, vol. 63(1), pages 30-56, April.

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    More about this item

    Keywords

    Vertical Integration; Capacity Investment; Electricity Sector;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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