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The measurement of scope, scale and diversification economies: How (in)efficient is electricity restructuring and unbundling?

  • Pablo Arocena


    (Universidad Pública de Navarra)

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    This paper estimates the degree of economies of scope, diversification and scale in the Spanish electricity industry by means of Data Envelopment Analysis. Our results show that there exist economies of integrating power generation and distribution, as well as economies of product diversification at the generation stage. Particularly, the hypothetical vertical unbundling and the generating product specialization of the existing diversified firms would raise the total operating costs of the Spanish electricity sector by 4.7 and 3.5 percent respectively. Additionally, size appears to be irrelevant provided that vertical scope and product-mix are preserved. Further, it is estimated that overall operating costs of the sector could be reduced by 2.7% by partitioning each of the diversified firms down the middle. In addition to improving firms? scale efficiency, such fragmentation would help to create a more competitive market structure.

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    Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2005/1.

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    Length: 28 pages
    Date of creation: 2005
    Date of revision:
    Handle: RePEc:ieb:wpaper:212905art64
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    1. Ramos-Real, Francisco Javier, 2005. "Cost functions and the electric utility industry. A contribution to the debate on deregulation," Energy Policy, Elsevier, vol. 33(1), pages 69-87, January.
    2. Nemoto, Jiro & Goto, Mika, 2004. "Technological externalities and economies of vertical integration in the electric utility industry," International Journal of Industrial Organization, Elsevier, vol. 22(1), pages 67-81, January.
    3. Kittelsen, Sverre A.C. & Magnussen, Jon, 2009. "Economies of scope in Norwegian hospital production - A DEA analysis," HERO On line Working Paper Series 2003:8, Oslo University, Health Economics Research Programme.
    4. Diego Prior & Magda Solà, 2000. "Technical efficiency and economies of diversification in health care," Health Care Management Science, Springer, vol. 3(4), pages 299-307, September.
    5. Russell Pittman, 2001. "Vertical Restructuring of the Infrastructure Sectors of Transition Economies," Industrial Organization 0111002, EconWPA.
    6. Jara-Diaz, Sergio & Ramos-Real, Francisco Javier & Martinez-Budria, Eduardo, 2004. "Economies of integration in the Spanish electricity industry using a multistage cost function," Energy Economics, Elsevier, vol. 26(6), pages 995-1013, November.
    7. Kwon, Oh Sang & Yun, Won-Cheol, 2003. "Measuring economies of scope for cogeneration systems in Korea: a nonparametric approach," Energy Economics, Elsevier, vol. 25(4), pages 331-338, July.
    8. Kai-Uwe Kühn & Matilde Machado, 2004. "Bilateral Market Power And Vertical Integration In The Spanish Electricity Spot Market," Working Papers wp2004_0414, CEMFI.
    9. Russell Pittman, 2003. "Vertical Restructuring (or Not) of the Infrastructure Sectors of Transition Economies," Journal of Industry, Competition and Trade, Springer, vol. 3(1), pages 5-26, March.
    10. Kwoka, John E., 2002. "Vertical economies in electric power: evidence on integration and its alternatives," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 653-671, May.
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