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Cross-Subsidies in the Electricity Sector

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  • B. Willems
  • E. Ehlers

Abstract

Most firms in the electricity sector are vertically integrated. Often these integrated firms are accused of using income generated in the regulated sector in order to cross-subsidize their unregulated activities. This cross-subsidization is said to distort the level-playing field and lead to an unfair competition between incumbent and entrants. In this paper we argue that cross-subsidies are a normal business practice which should only be a concern when they are part of anti-competitive practice such as a price squeeze or predatory pricing. If the government is concerned about those practices, it should evaluate the sector using a similar analysis as developed under Article 82 EC, regardless of whether cross-subsidies are involved.

Suggested Citation

  • B. Willems & E. Ehlers, 2008. "Cross-Subsidies in the Electricity Sector," Competition and Regulation in Network Industries, Intersentia, vol. 9(3), pages 201-228, September.
    • Handle: RePEc:sen:journl:v:9:i:3:y:2008:p:201-228
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    References listed on IDEAS

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    1. Faulhaber, Gerald R, 1975. "Cross-Subsidization: Pricing in Public Enterprises," American Economic Review, American Economic Association, vol. 65(5), pages 966-977, December.
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    Cited by:

    1. Hazleen Aris & Iskandar Shah Mohd Zawawi & Bo Nørregaard Jørgensen, 2020. "The Philippines’ and Singapore’s Journeys towards Liberalised Electricity Supply Industries—Takeaways for Malaysia," Energies, MDPI, vol. 13(14), pages 1-22, July.
    2. Michael Maphosa, 2018. "The User Pays's Principle and the Electricity Sector: A South African Case," Journal of Economics and Behavioral Studies, AMH International, vol. 10(5), pages 51-58.
    3. Cialani, Catia & Mortazavi, Reza, 2018. "Household and industrial electricity demand in Europe," Energy Policy, Elsevier, vol. 122(C), pages 592-600.
    4. Bert Willems & Juulia Zhou, 2020. "The Clean Energy Package and Demand Response: Setting Correct Incentives," Energies, MDPI, vol. 13(21), pages 1-19, October.

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