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Oligopoly equilibria in electricity contract markets

  • James Bushnell

    ()

This paper examines the implications of forward contracting on oligopoly environments by extending the model of Allaz and Vila to an environment with multi- ple firms and increasing marginal cost. Estimates of key parameters of this model are taken from existing electricity markets to predict the market impact of one round of public contracting, such as those seen in auctions for retail provision and resource pro- curement. The results imply that, when forward contracts are present, the importance of supplier concentration is greatly magnified relative to other determinants unilateral market power such as demand elasticity.

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File URL: http://hdl.handle.net/10.1007/s11149-007-9031-2
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Article provided by Springer in its journal Journal of Regulatory Economics.

Volume (Year): 32 (2007)
Issue (Month): 3 (December)
Pages: 225-245

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Handle: RePEc:kap:regeco:v:32:y:2007:i:3:p:225-245
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  1. Ferreira, Jose Luis, 2003. "Strategic interaction between futures and spot markets," Journal of Economic Theory, Elsevier, vol. 108(1), pages 141-151, January.
  2. Green, Richard, 1999. "The Electricity Contract Market in England and Wales," Journal of Industrial Economics, Wiley Blackwell, vol. 47(1), pages 107-24, March.
  3. Liski, Matti & Montero, Juan-Pablo, 2006. "Forward trading and collusion in oligopoly," Journal of Economic Theory, Elsevier, vol. 131(1), pages 212-230, November.
  4. Natalia Fabra & Juan Toro, 2001. "Price Wars and Collusion in the Spanish Electricity Market," Economic Working Papers at Centro de Estudios Andaluces E2001/05, Centro de Estudios Andaluces.
  5. Joshua S Gans, 2004. "Vertical Contracting When Competition for Orders Precedes Procurement," Econometric Society 2004 Australasian Meetings 123, Econometric Society.
  6. Bushnell, James & Mansur, Erin T. & Saravia, Celeste, 2008. "Vertical Arrangements, Market Structure and Competition: An Analysis of Restructured U.S. Electricity Markets," Staff General Research Papers 13130, Iowa State University, Department of Economics.
  7. 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 125-56, February.
  8. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-26, March.
  9. Bushnell, James, 2005. "Looking for Trouble: Competition Policy in the U.S. Electricity Industry," Staff General Research Papers 13140, Iowa State University, Department of Economics.
  10. Colin Loxley & David Salant, 2004. "Default Service Auctions," Journal of Regulatory Economics, Springer, vol. 26(2), pages 201-229, 09.
  11. Bushnell, James & Wolfram, Catherine, 2008. "Electricity Markets," Staff General Research Papers 31547, Iowa State University, Department of Economics.
  12. 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.
  13. Severin Borenstein & James Bushnell, 1998. "An Empirical Analysis of the Potential for Market Power in California's Electricity Industry," NBER Working Papers 6463, National Bureau of Economic Research, Inc.
  14. Severin Borenstein, 2002. "The Trouble With Electricity Markets: Understanding California's Restructuring Disaster," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 191-211, Winter.
  15. 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.
  16. Shapiro, Carl, 1989. "Theories of oligopoly behavior," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 6, pages 329-414 Elsevier.
  17. Powell, Andrew, 1993. "Trading Forward in an Imperfect Market: The Case of Electricity in Britain," Economic Journal, Royal Economic Society, vol. 103(417), pages 444-53, March.
  18. Mahenc, P. & Salanie, F., 2004. "Softening competition through forward trading," Journal of Economic Theory, Elsevier, vol. 116(2), pages 282-293, June.
  19. Green, Richard & Le Coq, ChloƩ, 2010. "The length of contracts and collusion," International Journal of Industrial Organization, Elsevier, vol. 28(1), pages 21-29, January.
  20. Hughes, John S. & Kao, Jennifer L., 1997. "Strategic forward contracting and observability," International Journal of Industrial Organization, Elsevier, vol. 16(1), pages 121-133, November.
  21. Bushnell, James, 2004. "California's electricity crisis: a market apart?," Energy Policy, Elsevier, vol. 32(9), pages 1045-1052, June.
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