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Incentives and Coordination in Vertically Related Energy Markets

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Author Info
Augusto Rupérez Micola
Albert Banal Estañol
Derek W. Bunn

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Abstract

We present an agent-based model of a multi-tier energy market including gas shippers, electricity generators and retailers. We show how reward interdependence between strategic business units within a vertically integrated firm can increase its profits in oligopolistic energy markets. The effects are shown to be distinct from those of the raising rivals’ costs model. In our case, higher prices relate to the nature of energy markets, which facilitate the emergence of financial netback effects.

ZUSAMMENFASSUNG - (Anreize und Koordination in vertikal integrierten Energiemärkten)
Es wird ein Agenten-basiertes Modell eines Energiemarktes mit mehreren Ebenen der Wertschöpfungskette vorgestellt, das Gaslieferanten, Stromerzeuger und Händler berücksichtigt. Es kann gezeigt werden, wie ein vertikal integriertes Unternehmen, das auf oligopolistischen Energiemärkten agiert, die Honorierungsbeziehungen zwischen strategischen Geschäftsbereichen nutzen kann, um seine Gewinne zu steigern. Üblicherweise versuchen Firmen, die die gesamte Wertschöpfungskette integriert haben, ihren Vorteil dadurch zu nutzen, dass sie die Kosten der Wettbewerber durch Preisdiskriminierung erhöhen und den Markt gegen sie abschotten. Das ist in Energiemärkten nicht möglich. Im vorgestellten Modell wird ein Mechanismus gewählt, der den Charakteristika von Energiemärkten angepasst ist, um über Anreize denselben Endeffekt zu erzielen. Dieser beruht aber nicht auf der Marktabschottung, sondern auf einem finanziellen Valorisierungseffekt, bei dem Unternehmensbereiche am Beginn der Wertschöpfungskette die Preisspannen für die Unternehmensteile am oberen Ende vorgeben.

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Publisher Info
Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number SP II 2006-02.

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Length: 17 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:wzb:wzebiv:spii2006-02

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Related research
Keywords: Agent-based modeling; energy markets; reward interdependence;

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Find related papers by JEL classification:
C63 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computational Techniques
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
L97 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Utilities: General

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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.:
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  3. James B. Bushnell & Erin T. Mansur & Celeste Saravia, 2007. "Vertical Arrangements, Market Structure, and Competition An Analysis of Restructured U.S. Electricity Markets," NBER Working Papers 13507, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Tesfatsion, Leigh S. & Judd, Kenneth L., 2003. "Handbook of Computational Economics, Vol. 2: Agent-Based Computational Economics," Staff General Research Papers 10368, Iowa State University, Department of Economics. [Downloadable!]
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  8. Hunger, David, 2003. "Analyzing Gas and Electric Convergence Mergers: A Supply Curve Is Worth a Thousand Words," Journal of Regulatory Economics, Springer, vol. 24(2), pages 161-73, September. [Downloadable!] (restricted)
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  12. Granitz, Elizabeth & Klein, Benjamin, 1996. "Monopolization by "Raising Rivals' Costs": The Standard Oil Case," Journal of Law & Economics, University of Chicago Press, vol. 39(1), pages 1-47, April.
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  14. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn. [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. Albert Banal-Estanol & Augusto Rupérez-Micola, 2007. "Composition of Electricity Generation Portfolios, Pivotal Dynamics and Market Prices," Economics Working Papers 1083, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
  2. Giorgio Fagiolo & Andrea Roventini, 2008. "On the Scientific Status of Economic Policy: A Tale of Alternative Paradigms," LEM Papers Series 2008/03, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy. [Downloadable!]
    Other versions:
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