Should Merchant Transmission Investment be Subject to a Must-offer Provision?
Merchant electricity transmission investment is a practically relevant example of an unregulated investment with monopoly properties. However, while leaving the investment decision to the market, the regulator may decide to prohibit capacity withholding with a must-offer provision. This paper examines the welfare effects of a must-offer provision prior to the capacity choice, given three reasons for capacity withholding: uncertainty, demand growth and pre-emptive investment. A must-offer provision will decrease welfare in the first two cases, and can enhance welfare only in the last case. In the presence of importer market power, a regulatory test might be needed.
|Date of creation:||Aug 2005|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.econ.cam.ac.uk/index.htm|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Brunekreeft, Gert, 2005. "Regulatory issues in merchant transmission investment," Utilities Policy, Elsevier, vol. 13(2), pages 175-186, June.
- Brunekreeft, Gert, 2004. "Market-based investment in electricity transmission networks: controllable flow," Utilities Policy, Elsevier, vol. 12(4), pages 269-281, December.
- Dixit, Avinash, 1979.
"The Role of Investment in Entry-Deterrence,"
The Warwick Economics Research Paper Series (TWERPS)
140, University of Warwick, Department of Economics.
- Paul Joskow & Jean Tirole, 2003.
"Merchant Transmission Investment,"
0304, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- Joskow, P. & Tirole, J., 2003. "Merchant Transmission Investment," Cambridge Working Papers in Economics 0324, Faculty of Economics, University of Cambridge.
- Joskow, Paul & Tirole, Jean, 2004. "Merchant Transmission Investment," IDEI Working Papers 263, Institut d'Économie Industrielle (IDEI), Toulouse.
- Paul Joskow & Jean Tirole, 2003. "Merchant Transmission Investment," NBER Working Papers 9534, National Bureau of Economic Research, Inc.
- Bushnell, James B & Stoft, Steven E, 1996. "Electric Grid Investment under a Contract Network Regime," Journal of Regulatory Economics, Springer, vol. 10(1), pages 61-79, July.
- Rosellón Juan, 2003. "Different Approaches Towards Electricity Transmission Expansion," Review of Network Economics, De Gruyter, vol. 2(3), pages 1-32, September.
- Gilbert, Richard, 1988.
"Mobility Barriers and the Value of Incumbency,"
Department of Economics, Working Paper Series
qt52q9j63w, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Katz, Michael L & Shapiro, Carl, 1987. "R&D Rivalry with Licensing or Imitation," American Economic Review, American Economic Association, vol. 77(3), pages 402-20, June.
- 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.
- Gert Brunekreeft, 2002. "Regulation and Third-Party Discrimination in the German Electricity Supply Industry," European Journal of Law and Economics, Springer, vol. 13(3), pages 203-220, May.
- Hogan, William W., 2003. "Transmission Market Design," Working Paper Series rwp03-040, Harvard University, John F. Kennedy School of Government.
- Tanga McDaniel & Neuhoff, K., 2002. "Auctions to gas transmission access: The British experience," Cambridge Working Papers in Economics 0234, Faculty of Economics, University of Cambridge.
- Richard Gilbert & Neuhoff, K. & Newbery, D., 2002. "Allocating Transmission to Mitigate Market Power in Electricity Networks," Cambridge Working Papers in Economics 0225, Faculty of Economics, University of Cambridge.
- Gert Brunekreeft & David Newbery, 2006.
"Should merchant transmission investment be subject to a must-offer provision?,"
Journal of Regulatory Economics,
Springer, vol. 30(3), pages 233-260, November.
- Brunekreeft, G. & Newbery, D., 2005. "Should Merchant Transmission Investment be Subject to a Must-offer Provision?," Cambridge Working Papers in Economics 0534, Faculty of Economics, University of Cambridge.
- Joshua S. Gans & Stephen P. King, 2004. "Access Holidays and the Timing of Infrastructure Investment," The Economic Record, The Economic Society of Australia, vol. 80(248), pages 89-100, 03.
- Joshua Gans & Stephen King, 2003. "Access Holidays for Network Infrastructure Investment," Monash Economics Working Papers archive-39, Monash University, Department of Economics.
- 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.
- B. Curtis Eaton & Roger Ware, 1987. "A Theory of Market Structure with Sequential Entry," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 1-16, Spring.
- Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-26, June.
When requesting a correction, please mention this item's handle: RePEc:cam:camdae:0534. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Howard Cobb)
If references are entirely missing, you can add them using this form.