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Should an incumbent generator be allowed to buy import transmission capacity?

Author

Listed:
  • Bert Willems

    () (K.U.Leuven, C.E.S., Energy, Transport and Environment)

Abstract

A small region has a high cost monopolistic electricity generator. It is connected through a low capacity transmission line with a large, competitive low cost region. Access to the transmission line is auctioned. I show that, if consumers arbitrate on the regional price differences, the monopolist will buy the transmission capacity. It is then welfare improving not to allow the monopolist to buy transmission rights. In theory, if consumers could co-ordinate and overcome free-riding, then they would bid more than the monopolist.

Suggested Citation

  • Bert Willems, 2003. "Should an incumbent generator be allowed to buy import transmission capacity?," Energy, Transport and Environment Working Papers Series ete0304, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.
  • Handle: RePEc:ete:etewps:ete0304
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    File URL: http://feb.kuleuven.be/drc/Economics/misc/ete_workingpapers/ETE-WP-2003-04.PDF
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    More about this item

    Keywords

    electricity; congestion; network; monopoly;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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