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Computable equilibrium models and the restructuring of the European electricity and gas markets

  • SMEERS, Yves

    ()

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

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    More regulation, not less, is temporarily necessary, if effective competition is to be established in network industries. This paradox places new requirements on computable models: they should provide realistic descriptions of technologies but also of market and institutions. Industrial economics and computation of economic equilibrium can help achieve this dual requirement. The paper discusses their potential in the context of the deregulation of the European gas and electricity sectors. Some key elements of the European legislative process are first presented in order to point to the diversity of institutions that can emerge and to the need to model institutions. Perfect competition equilibrium models although institutionally poor are argued to be useful for ex post analysis. Applications of the standard Cournot and Bertrand paradigms in ex ante analysis of gas and electricity markets are reviewed next. Models combining market power and externalities are then discussed with reference to electricity restructuring. Finally multistage equilibrium models are introduced in the context of investment in gas and electricity. Computation remarks conclude the paper.

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    Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1997061.

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    Date of creation: 01 Aug 1997
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    Handle: RePEc:cor:louvco:1997061
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