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On the Allocative Efficiency of Ownership Unbundling

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  • Bolle, Friedel
  • Breitmoser, Yves

Abstract

We analyze vertical structures where a regulated network operator serves n network users, and the network users compete in quantities for customers. We distinguish two cases: (i) none of the network users are related to the network operator (ownership unbundling), (ii) one of the network users is partially integrated with the operator and the others are disintegrated (legal unbundling). We seek to understand when ownership unbundling leads to lower customer prices, and formalize necessary conditions. In general, legal unbundling implies a less effective regulation, but it reduces the degree of market distortion caused by the difference between marginal costs and average costs (= regulated prices of network usage). We find that the necessary condition is not satisfied for realistic values of the relevant parameters, i.e. legal unbundling leads to lower costumer prices than ownership unbundling in most relevant markets. --

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Bibliographic Info

Paper provided by European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics in its series Discussion Papers with number 255.

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Date of creation: 2006
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Handle: RePEc:zbw:euvwdp:255

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Related research

Keywords: Unbundling; vertical integration; Cournot competition;

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References

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  1. van Koten, S. & Ortmann, A., 2008. "The unbundling regime for electricity utilities in the EU: A case of legislative and regulatory capture?," Energy Economics, Elsevier, Elsevier, vol. 30(6), pages 3128-3140, November.
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Cited by:
  1. Nillesen, P. & Pollitt, M.G., 2008. "Ownership unbundling in electricity distribution: empircal evidence from New Zealand," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0836, Faculty of Economics, University of Cambridge.
  2. Nikogosian, Vigen & Veith, Tobias, 2011. "Vertical integration, separation and non-price discrimination: An empirical analysis of German electricity markets for residential customers," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 11-069, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  3. Pollitt, Michael, 2008. "The arguments for and against ownership unbundling of energy transmission networks," Energy Policy, Elsevier, Elsevier, vol. 36(2), pages 704-713, February.
  4. Gugler, Klaus & Rammerstorfer, Margarethe & Schmitt, Stephan, 2013. "Ownership unbundling and investment in electricity markets — A cross country study," Energy Economics, Elsevier, Elsevier, vol. 40(C), pages 702-713.

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