IDEAS home Printed from https://ideas.repec.org/a/bla/ecinqu/v58y2020i3p1053-1075.html
   My bibliography  Save this article

Who (Else) Benefits From Electricity Deregulation? Coal Prices, Natural Gas, And Price Discrimination

Author

Listed:
  • Jonathan E. Hughes
  • Ian Lange

Abstract

Deregulation of major industries over the past 40 years has produced large efficiency gains. However, distributional effects have been more difficult to assess. In the electricity sector, deregulation has vastly increased information available to market participants through the formation of wholesale markets. We test whether upstream suppliers, specifically railroads that transport coal from mines to power plants, use this information to capture economic rents that would otherwise accrue to electricity generators. We find railroads charge higher markups when rents are larger. This effect is larger for deregulated plants, highlighting an important distributional impact of deregulation. (JEL L11, L51, Q48)

Suggested Citation

  • Jonathan E. Hughes & Ian Lange, 2020. "Who (Else) Benefits From Electricity Deregulation? Coal Prices, Natural Gas, And Price Discrimination," Economic Inquiry, Western Economic Association International, vol. 58(3), pages 1053-1075, July.
    • Handle: RePEc:bla:ecinqu:v:58:y:2020:i:3:p:1053-1075
    DOI: 10.1111/ecin.12896
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/ecin.12896
    Download Restriction: no
    File URL: https://libkey.io/10.1111/ecin.12896?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Steve Cicala, 2015. "When Does Regulation Distort Costs? Lessons from Fuel Procurement in US Electricity Generation," American Economic Review, American Economic Association, vol. 105(1), pages 411-444, January.
    2. Lucas W. Davis & Catherine Wolfram, 2012. "Deregulation, Consolidation, and Efficiency: Evidence from US Nuclear Power," American Economic Journal: Applied Economics, American Economic Association, vol. 4(4), pages 194-225, October.
    3. Corrado Di Maria & Ian A. Lange & Emiliya Lazarova, 2014. "A Look Upstream: Electricity Market Restructuring, Risk, Procurement Contracts and Efficiency," CESifo Working Paper Series 5124, CESifo.
    4. Natalia Fabra & Mar Reguant, 2014. "Pass-Through of Emissions Costs in Electricity Markets," American Economic Review, American Economic Association, vol. 104(9), pages 2872-2899, September.
    5. Chan, H. Ron & Fell, Harrison & Lange, Ian & Li, Shanjun, 2017. "Efficiency and environmental impacts of electricity restructuring on coal-fired power plants," Journal of Environmental Economics and Management, Elsevier, vol. 81(C), pages 1-18.
    6. James MacDonald, 2013. "Railroads and Price Discrimination: The Roles of Competition, Information, and Regulation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 43(1), pages 85-101, August.
    7. Sharat Ganapati & Joseph S. Shapiro & Reed Walker, 2016. "The Incidence of Carbon Taxes in U.S. Manufacturing: Lessons from Energy Cost Pass-through," Cowles Foundation Discussion Papers 2038R3, Cowles Foundation for Research in Economics, Yale University, revised Mar 2018.
    8. Linn, Joshua & Muehlenbachs, Lucija, 2018. "The heterogeneous impacts of low natural gas prices on consumers and the environment," Journal of Environmental Economics and Management, Elsevier, vol. 89(C), pages 1-28.
    9. Scott E. Atkinson & Joe Kerkvliet, 1986. "Measuring the Multilateral Allocation of Rents: Wyoming Low-Sulfur Coal," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 416-430, Autumn.
    10. Joskow, Paul L, 1987. "Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets," American Economic Review, American Economic Association, vol. 77(1), pages 168-185, March.
    11. Hughes, Jonathan E., 2011. "The higher price of cleaner fuels: Market power in the rail transport of fuel ethanol," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 123-139, September.
    12. Yin Chu & J. Scott Holladay & Jacob LaRiviere, 2017. "Opportunity Cost Pass†Through from Fossil Fuel Market Prices to Procurement Costs of the U.S. Power Producers," Journal of Industrial Economics, Wiley Blackwell, vol. 65(4), pages 842-871, December.
    13. Christopher R. Knittel & Ben S. Meiselman & James H. Stock, 2017. "The Pass-Through of RIN Prices to Wholesale and Retail Fuels under the Renewable Fuel Standard," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 4(4), pages 1081-1119.
    14. Joseph A. Cullen & Erin T. Mansur, 2017. "Inferring Carbon Abatement Costs in Electricity Markets: A Revealed Preference Approach Using the Shale Revolution," American Economic Journal: Economic Policy, American Economic Association, vol. 9(3), pages 106-133, August.
    15. Erich Muehlegger & Richard L. Sweeney, 2017. "Pass-Through of Own and Rival Cost Shocks: Evidence from the U.S. Fracking Boom," NBER Working Papers 24025, National Bureau of Economic Research, Inc.
    16. Severin Borenstein & James B. Bushnell & Frank A. Wolak, 2002. "Measuring Market Inefficiencies in California's Restructured Wholesale Electricity Market," American Economic Review, American Economic Association, vol. 92(5), pages 1376-1405, December.
    17. Catherine D. Wolfram, 1999. "Measuring Duopoly Power in the British Electricity Spot Market," American Economic Review, American Economic Association, vol. 89(4), pages 805-826, September.
    18. Catherine Hausman, 2014. "Corporate Incentives and Nuclear Safety," American Economic Journal: Economic Policy, American Economic Association, vol. 6(3), pages 178-206, August.
    19. He, Qingxin & Lee, Jonathan M., 2016. "The effect of coal combustion byproducts on price discrimination by upstream industries," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 11-24.
    20. Harrison Fell & Daniel T. Kaffine, 2018. "The Fall of Coal: Joint Impacts of Fuel Prices and Renewables on Generation and Emissions," American Economic Journal: Economic Policy, American Economic Association, vol. 10(2), pages 90-116, May.
    21. Schmidt, Stephen, 2001. "Market structure and market outcomes in deregulated rail freight markets," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 99-131, January.
    22. Garrod, P V & Miklius, W, 1987. ""Captive Shippers" and the Success of Railroads in Capturing Monopoly Rent," Journal of Law and Economics, University of Chicago Press, vol. 30(2), pages 423-442, October.
    23. MacDonald, James M, 1989. "Railroad Deregulation, Innovation, and Competition: Effects of the Staggers Act on Grain Transportation," Journal of Law and Economics, University of Chicago Press, vol. 32(1), pages 63-95, April.
    24. Frank A. Wolak, 2003. "Measuring Unilateral Market Power in Wholesale Electricity Markets: The California Market, 1998–2000," American Economic Review, American Economic Association, vol. 93(2), pages 425-430, May.
    25. Yin Chu & J. Scott Holladay & Jacob LaRiviere, 2017. "Opportunity Cost Pass-through from Fossil Fuel Market Prices to Procurement Costs of the U.S. Power Producers," Working Papers 2017-02, University of Tennessee, Department of Economics.
    26. James M. MacDonald, 1987. "Competition and Rail Rates for the Shipment of Corn, Soybeans, and Wheat," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 151-163, Spring.
    27. Knittel, Christopher R. & Metaxoglou, Konstantinos & Trindade, André, 2019. "Environmental implications of market structure: Shale gas and electricity markets," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 511-550.
    28. Di Maria, Corrado & Lange, Ian & Lazarova, Emiliya, 2018. "A look upstream: Market restructuring, risk, procurement contracts and efficiency," International Journal of Industrial Organization, Elsevier, vol. 57(C), pages 35-83.
    29. Ellig, Jerry, 2002. "Railroad Deregulation and Consumer Welfare," Journal of Regulatory Economics, Springer, vol. 21(2), pages 143-167, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Qiang Chen & Anush Balian & Mykola Kyzym & Tetiana Salashenko & Inna Gryshova & Viktoriia Khaustova, 2021. "Electricity Markets Instability: Causes of Price Dispersion," Sustainability, MDPI, vol. 13(22), pages 1-19, November.
    2. Yana S. Matkovskaya & Elena Vechkinzova & Yelena Petrenko & Larissa Steblyakova, 2021. "Problems of Innovative Development of Oil Companies: Actual State, Forecast and Directions for Overcoming the Prolonged Innovation Pause," Energies, MDPI, vol. 14(4), pages 1-24, February.
    3. Eyer, Jonathan & Kahn, Matthew E., 2020. "Prolonging coal’s sunset: Local demand for local supply," Regional Science and Urban Economics, Elsevier, vol. 81(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alexander Hill, 2023. "Price freezes and gas pass-through: an estimation of the price impact of electricity market restructuring," Journal of Regulatory Economics, Springer, vol. 63(1), pages 87-116, April.
    2. Knittel, Christopher R. & Metaxoglou, Konstantinos & Trindade, André, 2019. "Environmental implications of market structure: Shale gas and electricity markets," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 511-550.
    3. Carlos Suarez, 2021. "Private management and strategic bidding behavior in electricity markets: Evidence from Colombia," IREA Working Papers 202102, University of Barcelona, Research Institute of Applied Economics, revised Jan 2021.
    4. Hughes, Jonathan E., 2011. "The higher price of cleaner fuels: Market power in the rail transport of fuel ethanol," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 123-139, September.
    5. Suarez, Carlos, 2022. "Private management and strategic bidding behavior in electricity markets: Evidence from Colombia," Energy Economics, Elsevier, vol. 111(C).
    6. Brett Watson & Ian Lange & Joshua Linn, 2023. "Coal demand, market forces, and U.S. coal mine closures," Economic Inquiry, Western Economic Association International, vol. 61(1), pages 35-57, January.
    7. Chu, Yin & Chang, Chun-Ping, 2020. "Vertical separation of transmission control and market efficiency in the wholesale electricity market," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    8. Corrado Di Maria & Ian A. Lange & Emiliya Lazarova, 2014. "A Look Upstream: Electricity Market Restructuring, Risk, Procurement Contracts and Efficiency," CESifo Working Paper Series 5124, CESifo.
    9. Karney, Daniel H., 2019. "Electricity market deregulation and environmental regulation: Evidence from U.S. nuclear power," Energy Economics, Elsevier, vol. 84(C).
    10. Grossi, Luigi & Heim, Sven & Waterson, Michael, 2017. "The impact of the German response to the Fukushima earthquake," Energy Economics, Elsevier, vol. 66(C), pages 450-465.
    11. Christopher R. Knittel & Konstantinos Metaxoglou & Anson Soderbery & André Trindade, 2022. "Exporting global warming? Coal trade and the shale gas boom," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(3), pages 1294-1333, August.
    12. Sven-Olof Fridolfsson and Thomas P. Tangeras, 2015. "Nuclear Capacity Auctions," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    13. David P. Brown & Derek E. H. Olmstead, 2017. "Measuring market power and the efficiency of Alberta's restructured electricity market: An energy-only market design," Canadian Journal of Economics, Canadian Economics Association, vol. 50(3), pages 838-870, August.
    14. Linn, Joshua & Muehlenbachs, Lucija, 2018. "The heterogeneous impacts of low natural gas prices on consumers and the environment," Journal of Environmental Economics and Management, Elsevier, vol. 89(C), pages 1-28.
    15. Gugler, Klaus & Haxhimusa, Adhurim & Liebensteiner, Mario, 2021. "Effectiveness of climate policies: Carbon pricing vs. subsidizing renewables," Journal of Environmental Economics and Management, Elsevier, vol. 106(C).
    16. James MacDonald, 2013. "Railroads and Price Discrimination: The Roles of Competition, Information, and Regulation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 43(1), pages 85-101, August.
    17. Carlos Suarez, 2021. "Mixed Oligopoly and Market Power Mitigation: Evidence from the Colombian Wholesale Electricity Market," IREA Working Papers 202101, University of Barcelona, Research Institute of Applied Economics, revised Jan 2021.
    18. Yin Chu & J. Scott Holladay & Jacob LaRiviere, 2017. "Opportunity Cost Pass-through from Fossil Fuel Market Prices to Procurement Costs of the U.S. Power Producers," Working Papers 2017-02, University of Tennessee, Department of Economics.
    19. Lange, Ian & Maniloff, Peter, 2021. "Updating allowance allocations in cap-and-trade: Evidence from the NOx Budget Program," Journal of Environmental Economics and Management, Elsevier, vol. 105(C).
    20. Wesley W. Wilson & Frank A. Wolak, 2018. "Benchmark Regulation of Multiproduct Firms: An Application to the Rail Industry," NBER Working Papers 25268, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ecinqu:v:58:y:2020:i:3:p:1053-1075. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/weaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.