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Vertically integrated firms' investments in electricity generating capacities

Listed author(s):
  • Boom, Anette

We compare investments in generating capacities of an integrated monopolist with the aggregate investments of two vertically integrated competing firms. The firms invest in their capacity and fix the retail price while electricity demand is uncertain. The wholesale price is determined in a unit price auction where the firms know the level of demand when they bid their capacities. Total capacities can be larger or smaller with a duopoly than with a monopoly. If the two firms select the Pareto dominant equilibrium, then the retail price is always higher and the social welfare lower in the duopoly case.

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File URL: http://www.sciencedirect.com/science/article/pii/S0167-7187(09)00007-1
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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 27 (2009)
Issue (Month): 4 (July)
Pages: 544-551

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Handle: RePEc:eee:indorg:v:27:y:2009:i:4:p:544-551
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. Robert Wilson, 2002. "Architecture of Power Markets," Econometrica, Econometric Society, vol. 70(4), pages 1299-1340, July.
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  4. Emmanuel Dechenaux & Dan Kovenock, 2007. "Tacit collusion and capacity withholding in repeated uniform price auctions," RAND Journal of Economics, RAND Corporation, vol. 38(4), pages 1044-1069, December.
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  11. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
  12. Mansur, Erin T, 2007. "Upstream Competition and Vertical Integration in Electricity Markets," Journal of Law and Economics, University of Chicago Press, vol. 50(1), pages 125-156, February.
  13. Green, Richard & Newbery, David M G, 1991. "Competition in the British Electricity Spot Market," CEPR Discussion Papers 557, C.E.P.R. Discussion Papers.
  14. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-1277, November.
  15. Kühn, Kai-Uwe & Machado, Matilde Pinto, 2004. "Bilateral Market Power and Vertical Integration in the Spanish Electricity Spot Market," CEPR Discussion Papers 4590, C.E.P.R. Discussion Papers.
  16. Anette Boom, 2007. "Vertically Integrated Firms' Investments in Electricity Generating Capacities," CIE Discussion Papers 2007-14, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  17. Von der Fehr, N.H.M. & Harbord, D., 1992. "Spot Market Competition in the UK Electricity Industry," Memorandum 09/1992, Oslo University, Department of Economics.
  18. Baldursson , Fridrik M. & von der Fehr, Nils-Henrik, 2007. "Vertical Integration and Long-Term Contracts in Risky Markets," Memorandum 01/2007, Oslo University, Department of Economics.
  19. Anette Boom & Stefan Buehler, 2007. "Restructuring Electricity Markets when Demand is Uncertain: Effects on Capacity Investments, Prices and Welfare," CIE Discussion Papers 2007-09, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  20. Kai-Uwe Kühn & Matilde Machado, 2004. "Bilateral Market Power And Vertical Integration In The Spanish Electricity Spot Market," Working Papers wp2004_0414, CEMFI.
  21. repec:rje:randje:v:37:y:2006:i:4:p:799-815 is not listed on IDEAS
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