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Transmission-constrained oligopoly in the Japanese electricity market

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  • Tanaka, Makoto

Abstract

We simulate the Japanese wholesale electricity market as a transmission-constrained Cournot market using a linear complementarity approach. First, we investigate the effects of upgrading the bottleneck transmission line between the eastern and western regions, focusing on the mitigation of transmission congestion. Although increasing the bottleneck capacity would lead to welfare gains, they might not be substantial particularly when transmission capacity costs are taken into account. Second, we examine the effects of splitting the largest electric power company, which is located in the eastern region, focusing on the mitigation of market power. Splitting the largest company into two companies would lead to a 25% reduction in the eastern price, and a 50% reduction in deadweight loss. The divestiture of the largest company would have a significant effect of mitigating market power in the Japanese electricity market.

Suggested Citation

  • Tanaka, Makoto, 2009. "Transmission-constrained oligopoly in the Japanese electricity market," Energy Economics, Elsevier, vol. 31(5), pages 690-701, September.
  • Handle: RePEc:eee:eneeco:v:31:y:2009:i:5:p:690-701
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    References listed on IDEAS

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    1. TANAKA Makoto, 2006. "A Simulation Analysis of Transmission - Constrained Oligopoly in the Wholesale Electricity Market (Japanese)," Discussion Papers (Japanese) 06010, Research Institute of Economy, Trade and Industry (RIETI).
    2. Green, Richard, 1999. "The Electricity Contract Market in England and Wales," Journal of Industrial Economics, Wiley Blackwell, vol. 47(1), pages 107-124, March.
    3. Makoto Tanaka, 2007. "Extended Price Cap Mechanism for Efficient Transmission Expansion under Nodal Pricing," Networks and Spatial Economics, Springer, vol. 7(3), pages 257-275, September.
    4. Severin Borenstein & James. Bushnell & Steven Stoft, 2000. "The Competitive Effects of Transmission Capacity in A Deregulated Electricity Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 294-325, Summer.
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    7. Berry, Carolyn A. & Hobbs, Benjamin F. & Meroney, William A. & O'Neill, Richard P. & StewartJr, William R., 1999. "Understanding how market power can arise in network competition: a game theoretic approach," Utilities Policy, Elsevier, vol. 8(3), pages 139-158, September.
    8. Green, Richard J, 1996. "Increasing Competition in the British Electricity Spot Market," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 205-216, June.
    9. Cardell, Judith B. & Hitt, Carrie Cullen & Hogan, William W., 1997. "Market power and strategic interaction in electricity networks," Resource and Energy Economics, Elsevier, vol. 19(1-2), pages 109-137, March.
    10. Yao, Jian & Oren, Shmuel S. & Adler, Ilan, 2007. "Two-settlement electricity markets with price caps and Cournot generation firms," European Journal of Operational Research, Elsevier, vol. 181(3), pages 1279-1296, September.
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    Citations

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    Cited by:

    1. Nakajima, Tadahiro, 2013. "Inefficient and opaque price formation in the Japan Electric Power Exchange," Energy Policy, Elsevier, vol. 55(C), pages 329-334.
    2. Weigt, H. & Willems, Bert, 2011. "The Effect of Divestitures in the German Electricity Market," Discussion Paper 2011-034, Tilburg University, Center for Economic Research.
    3. Nobuhiro Hosoe & Makoto Tanaka, 2012. "How Much is TEPCO Worth?–Estimating the Fundamental Value of its Thermal Plants," GRIPS Discussion Papers 12-02, National Graduate Institute for Policy Studies.
    4. Spiridonova, Olga, 2016. "Transmission capacities and competition in Western European electricity market," Energy Policy, Elsevier, vol. 96(C), pages 260-273.
    5. Ciarreta, Aitor & Nasirov, Shahriyar & Silva, Carlos, 2016. "The development of market power in the Spanish power generation sector: Perspectives after market liberalization," Energy Policy, Elsevier, vol. 96(C), pages 700-710.
    6. TANAKA Makoto, 2007. "Oligopolistic Competition in the Japanese Wholesale Electricity Market: A Linear Complementarity Approach," Discussion papers 07023, Research Institute of Economy, Trade and Industry (RIETI).
    7. Zerrahn, Alexander & Huppmann, Daniel, 2014. "Network Expansion to Mitigate Market Power: How Increased Integration Fosters Welfare," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100459, Verein für Socialpolitik / German Economic Association.
    8. repec:kap:netspa:v:17:y:2017:i:2:d:10.1007_s11067-017-9338-1 is not listed on IDEAS
    9. de Nooij, Michiel, 2011. "Social cost-benefit analysis of electricity interconnector investment: A critical appraisal," Energy Policy, Elsevier, vol. 39(6), pages 3096-3105, June.
    10. Kamiński, Jacek, 2014. "A blocked takeover in the Polish power sector: A model-based analysis," Energy Policy, Elsevier, vol. 66(C), pages 42-52.
    11. Kamiński, Jacek, 2011. "Market power in a coal-based power generation sector: The case of Poland," Energy, Elsevier, vol. 36(11), pages 6634-6644.
    12. Michiel de Nooij, 2010. "Social Cost Benefit Analysis of Interconnector Investment: A Critical Appraisal," Bremen Energy Working Papers 0002, Bremen Energy Research.
    13. Kamiński, Jacek, 2012. "The development of market power in the Polish power generation sector: A 10-year perspective," Energy Policy, Elsevier, vol. 42(C), pages 136-147.
    14. Hosoe, Nobuhiro & Tanaka, Makoto, 2012. "Divestiture of TEPCO for reparation for the Fukushima nuclear accident–A path to vertical unbundling," Energy Policy, Elsevier, vol. 51(C), pages 207-212.

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