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The More Cooperation, the More Competition? A Cournot Analysis of the Benefits of Electric Market Coupling

  • Hobbs, B.F.
  • Rijkers, F.A.M.

Market coupling in Belgian and Dutch markets would permit more efficient use of intercountry transmission, 1) by counting only net flows against transmission limits, 2) by improving access to the Belgian market, and 3) by eliminating the mismatch in timing between interface auctions and the energy spot market. A Cournot market model that accounts for the region’s transmission pricing rules and limitations is used to simulate market outcomes with and without market coupling. This accounts for 1) and 2). Market coupling improves social surplus in the order of 108 €/year, unless it encourages the largest producer in the region to switch from a price-taking strategy in Belgium to a Cournot strategy due to a perceived diminishment of the threat of regulatory intervention. Benefit to Dutch consumers depends on the behavior of this company. The results illustrate how large-scale oligopoly models can be useful for assessing market integration.

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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0509.

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Length: 38
Date of creation: Jan 2005
Date of revision:
Handle: RePEc:cam:camdae:0509
Note: CMI, IO
Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

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  1. Joskow, Paul L & Tirole, Jean, 1999. "Transmission Rights and Market Power on Electric Power Networks I: Financial Rights," CEPR Discussion Papers 2093, C.E.P.R. Discussion Papers.
  2. Le Coq, Chloe & Orzen, Henrik, 2006. "Do forward markets enhance competition?: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 61(3), pages 415-431, November.
  3. Green, Richard, 1999. "The Electricity Contract Market in England and Wales," Journal of Industrial Economics, Wiley Blackwell, vol. 47(1), pages 107-24, March.
  4. Allaz Blaise & Vila Jean-Luc, 1993. "Cournot Competition, Forward Markets and Efficiency," Journal of Economic Theory, Elsevier, vol. 59(1), pages 1-16, February.
  5. Newbery, D. & Tanga McDaniel, 2002. "Auctions and trading in energy markets -- an economic analysis," Cambridge Working Papers in Economics 0233, Faculty of Economics, University of Cambridge.
  6. R.A. Hakvoort & H.P.A. Knops & L.J. De Vries, 2001. "Congestion management in the European electricity system: An evaluation of the alternatives," Competition and Regulation in Network Industries, Intersentia, vol. 2(3), pages 311-352, September.
  7. SMEERS, Yves, 1997. "Computable equilibrium models and the restructuring of the European electricity and gas markets," CORE Discussion Papers 1997061, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. 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.
  9. Yves Smeers, 1997. "Computable Equilibrium Models and the Restructuring of the European Electricity and Gas Markets," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 1-31.
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