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The Competitive Role of the Transmisión System in Price-regulated Power Industries

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  • M. Soledad Arellano
  • Pablo Serra

Abstract

This note shows how the transmission system can enhance competition in price-regulated power industries, thus extending earlier findings reported in the literature for deregulated industries. In the context of a two-technology, price-regulated power industry, we show that the interconnection of two markets initially supplied by a different monopoly reduces market power and raises welfare. We also show that the capacity of the transmission line plays a key role in determining whether market equilibrium lies closer to competition or monopoly.

Suggested Citation

  • M. Soledad Arellano & Pablo Serra, 2005. "The Competitive Role of the Transmisión System in Price-regulated Power Industries," Documentos de Trabajo 214, Centro de Economía Aplicada, Universidad de Chile.
    • Handle: RePEc:edj:ceauch:214
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    References listed on IDEAS

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    1. Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-242, September.
    2. Hogendorn, Christiaan, 2003. "Collusive Long-Run Investments under Transmission Price-Caps," Journal of Regulatory Economics, Springer, vol. 24(3), pages 271-291, November.
    3. 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.
    4. Severin Borenstein & James. Bushnell & Steven Stoft, 2000. "The Competitive Effects of Transmission Capacity in A Deregulated Electricity Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 294-325, Summer.
    5. M. Soledad Arellano & Pablo Serra, 2005. "Market Power in Price-Regulated Power Industries," Documentos de Trabajo 208, Centro de Economía Aplicada, Universidad de Chile.
    6. Crew, Michael A & Fernando, Chitru S & Kleindorfer, Paul R, 1995. "The Theory of Peak-Load Pricing: A Survey," Journal of Regulatory Economics, Springer, vol. 8(3), pages 215-248, November.
    7. Oren, Shmuel S. & Spiller, Pablo T. & Varaiya, Pravin & Wu, Felix, 1995. "Nodal prices and transmission rights: A critical appraisal," The Electricity Journal, Elsevier, vol. 8(3), pages 24-35, April.
    8. Leautier, Thomas-Olivier, 2001. "Transmission Constraints and Imperfect Markets for Power," Journal of Regulatory Economics, Springer, vol. 19(1), pages 27-54, January.
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    Cited by:

    1. Javier Bustos-Salvagno & Fernando Fuentes H., 2017. "Electricity Interconnection in Chile: Prices versus Costs," Energies, MDPI, vol. 10(9), pages 1-17, September.
    2. Nardi, Paolo, 2012. "Transmission network unbundling and grid investments: Evidence from the UCTE countries," Utilities Policy, Elsevier, vol. 23(C), pages 50-58.
    3. Ye He & Siming Guo & Yu Wang & Yujia Zhao & Weidong Zhu & Fangyuan Xu & Chun Sing Lai & Ahmed F. Zobaa, 2022. "An Agent-Based Bidding Simulation Framework to Recognize Monopoly Behavior in Power Markets," Energies, MDPI, vol. 16(1), pages 1-19, December.
    4. Wolak, Frank A., 2015. "Measuring the competitiveness benefits of a transmission investment policy: The case of the Alberta electricity market," Energy Policy, Elsevier, vol. 85(C), pages 426-444.

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