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End user prices in liberalised energy markets

Author

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  • Mark Lijesen

Abstract

As European energy markets move towards deregulation, energy prices shift from classic ‘cost plus' prices towards market prices. As European energy markets move towards deregulation, energy prices shift from classic ‘cost plus' prices towards market prices. We develop a model for the retail and wholesale energy markets in Europe, based on Bertrand competition in a two part pricing structure with switching costs. We use the model to forecast end user electricity and natural gas prices and find that the introduction of competition in energy retail and wholesale markets will decrease standing charges, lowering total costs for energy users. A larger number of entrants, a cost advantage for one of the suppliers, or lower switching costs reduces standing charges further.

Suggested Citation

  • Mark Lijesen, 2002. "End user prices in liberalised energy markets," CPB Discussion Paper 16, CPB Netherlands Bureau for Economic Policy Analysis.
    • Handle: RePEc:cpb:discus:16
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    References listed on IDEAS

    as
    1. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: I. Overview and Nondiscriminatory Pricing," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 1-37, Spring.
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    3. Lewis, Tracy R. & Sappington, David E. M., 1999. "Access pricing with unregulated downstream competition," Information Economics and Policy, Elsevier, vol. 11(1), pages 73-100, March.
    4. Laffont, Jean-Jacques & Rey, Patrick & Tirole, Jean, 1997. "Competition between telecommunications operators," European Economic Review, Elsevier, vol. 41(3-5), pages 701-711, April.
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    6. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: II. Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 38-56, Spring.
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    8. Mark Lijesen, 2002. "Welfare effects of vertical integration in energy distribution," CPB Memorandum 43, CPB Netherlands Bureau for Economic Policy Analysis.
    9. Green, Richard, 2000. "Can Competition Replace Regulation for Small Utility Customers?," CEPR Discussion Papers 2406, C.E.P.R. Discussion Papers.
    10. repec:aen:journl:2000v21-04-a01 is not listed on IDEAS
    11. Gerald Granderson, 2000. "Regulation, Open-Access Transportation, and Productive Efficiency," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 16(3), pages 251-266, May.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Mark Lijesen & Hein Mannaerts & Machiel Mulder, 2002. "Will California come to Europe? A Numerical Simulation," Journal of Industry, Competition and Trade, Springer, vol. 2(1), pages 173-188, June.
    2. Machiel Mulder & Victoria Shestalova & Mark Lijesen, 2005. "Vertical separation of the energy-distribution industry; an assessment of several options for unbundling," CPB Document 84.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Machiel Mulder & Victoria Shestalova & Mark Lijesen, 2005. "Vertical separation of the energy-distribution industry; an assessment of several options for unbundling," CPB Document 84, CPB Netherlands Bureau for Economic Policy Analysis.

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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