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End user prices in liberalised energy markets

Author

Listed:
  • Mark Lijesen

    (CPB Netherlands Bureau for Economic Policy Analysis)

Abstract

As European energy markets move towards deregulation, energy prices shift from classic ‘cost plus' prices towards market prices. Read also the accompanying press release . 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.
    2. Calem, Paul S. & Spulber, Daniel F., 1984. "Multiproduct two part tariffs," International Journal of Industrial Organization, Elsevier, vol. 2(2), pages 105-115, June.
    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.
    5. Armstrong, Thomas O. & Leppel, Karen, 1994. "Are regulated and potentially unregulated combination gas and electric utilities natural monopolies?," Journal of Economics and Business, Elsevier, vol. 46(3), pages 195-206, August.
    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.
    7. Mark Lijesen, 2002. "Welfare effects of vertical integration in energy distribution," CPB Memorandum 43, CPB Netherlands Bureau for Economic Policy Analysis.
    8. Green, Richard, 2000. "Can Competition Replace Regulation for Small Utility Customers?," CEPR Discussion Papers 2406, C.E.P.R. Discussion Papers.
    9. Andrew A. Goett & Kathleen Hudson & Kenneth E. Train, 2000. "Customers' Choice Among Retail Energy Suppliers: The Willingness-to-Pay for Service Attributes," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 1-28.
    10. 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)

    Citations

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    Cited by:

    1. 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.
    2. 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.

    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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