On the Allocative Efficiency of Ownership Unbundling
AbstractWe 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 InfoPaper provided by European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics in its series Discussion Papers with number 255.
Date of creation: 2006
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Unbundling; vertical integration; Cournot competition;
Find related papers by JEL classification:
- L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
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- van Koten, S. & Ortmann, A., 2008.
"The unbundling regime for electricity utilities in the EU: A case of legislative and regulatory capture?,"
Elsevier, vol. 30(6), pages 3128-3140, November.
- Silvester van Koten & Andreas Ortmann, 2007. "The Unbundling Regime for Electricity Utilities in the EU: A Case of Legislative and Regulatory Capture?," CERGE-EI Working Papers wp328, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
- Paul Nillesen & Michael Pollitt, 2011.
"Ownership Unbundling in Electricity Distribution: Empirical Evidence from New Zealand,"
Review of Industrial Organization,
Springer, vol. 38(1), pages 61-93, January.
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- Gugler, Klaus & Rammerstorfer, Margarethe & Schmitt, Stephan, 2013. "Ownership unbundling and investment in electricity markets — A cross country study," Energy Economics, Elsevier, vol. 40(C), pages 702-713.
- Pollitt, M., 2007.
"The arguments for and against ownership unbundling of energy transmission networks,"
Cambridge Working Papers in Economics
0737, Faculty of Economics, University of Cambridge.
- Pollitt, Michael, 2008. "The arguments for and against ownership unbundling of energy transmission networks," Energy Policy, Elsevier, vol. 36(2), pages 704-713, February.
- 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 11-069, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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