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Vertical integration and market power: A model-based analysis of restructuring in the Korean electricity market

  • Bunn, Derek W.
  • Martoccia, Maria
  • Ochoa, Patricia
  • Kim, Haein
  • Ahn, Nam-Sung
  • Yoon, Yong-Beom
Registered author(s):

    An agent-based simulation model is developed using computational learning to investigate the impact of vertical integration between electricity generators and retailers on market power in a competitive wholesale market setting. It is observed that if partial vertical integration creates some market foreclosure, whether this leads to an increase or decrease in market power is situation specific. A detailed application to the Korean market structure reveals this to be the case. We find that in various cases, whilst vertical integration generally reduces spot prices, it can increase or decrease the market power of other market generators, depending upon the market share and the technology segment of the market, which is integrated, as well as the market concentrations before and after the integration.

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    Article provided by Elsevier in its journal Energy Policy.

    Volume (Year): 38 (2010)
    Issue (Month): 7 (July)
    Pages: 3710-3716

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    Handle: RePEc:eee:enepol:v:38:y:2010:i:7:p:3710-3716
    Contact details of provider: Web page: http://www.elsevier.com/locate/enpol

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    1. Weidlich, Anke & Veit, Daniel, 2008. "A critical survey of agent-based wholesale electricity market models," Energy Economics, Elsevier, vol. 30(4), pages 1728-1759, July.
    2. 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.
    3. Ahn, Nam-sung & Niemeyer, Victor, 2007. "Modeling market power in Korea's emerging power market," Energy Policy, Elsevier, vol. 35(2), pages 899-906, February.
    4. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-42, March.
    5. Bower, John & Bunn, Derek, 2001. "Experimental analysis of the efficiency of uniform-price versus discriminatory auctions in the England and Wales electricity market," Journal of Economic Dynamics and Control, Elsevier, vol. 25(3-4), pages 561-592, March.
    6. Frank Wolak, 2000. "An Empirical Analysis of the Impact of Hedge Contracts on Bidding Behavior in a Competitive Electricity Market," International Economic Journal, Taylor & Francis Journals, vol. 14(2), pages 1-39.
    7. Lee, Byoung-Hoon & Ahn, Hyeon-Hyo, 2006. "Electricity industry restructuring revisited: the case of Korea," Energy Policy, Elsevier, vol. 34(10), pages 1115-1126, July.
    8. Green, Richard, 1999. "The Electricity Contract Market in England and Wales," Journal of Industrial Economics, Wiley Blackwell, vol. 47(1), pages 107-24, March.
    9. Allaz Blaise & Vila Jean-Luc, 1993. "Cournot Competition, Forward Markets and Efficiency," Journal of Economic Theory, Elsevier, vol. 59(1), pages 1-16, February.
    10. Salinger, Michael A, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 345-56, May.
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