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Oligopoly Equilibria in Electricity Contract Markets

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  • Bushnell, James

Abstract

This paper examines the implications of forward contracting on oligopoly environments by extending the model of Allaz and Vila to an environment with multi- ple firms and increasing marginal cost. Estimates of key parameters of this model are taken from existing electricity markets to predict the market impact of one round of public contracting, such as those seen in auctions for retail provision and resource pro- curement. The results imply that, when forward contracts are present, the importance of supplier concentration is greatly magnified relative to other determinants unilateral market power such as demand elasticity.

Suggested Citation

  • Bushnell, James, 2007. "Oligopoly Equilibria in Electricity Contract Markets," Staff General Research Papers Archive 13135, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:13135
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    References listed on IDEAS

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    2. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, pages 107-126.
    3. James B. Bushnell & Erin T. Mansur & Celeste Saravia, 2008. "Vertical Arrangements, Market Structure, and Competition: An Analysis of Restructured US Electricity Markets," American Economic Review, American Economic Association, pages 237-266.
    4. Frank Wolak, 2000. "An Empirical Analysis of the Impact of Hedge Contracts on Bidding Behavior in a Competitive Electricity Market," International Economic Journal, Taylor & Francis Journals, pages 1-39.
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    7. Ferreira, Jose Luis, 2003. "Strategic interaction between futures and spot markets," Journal of Economic Theory, Elsevier, vol. 108(1), pages 141-151, January.
    8. Mahenc, P. & Salanie, F., 2004. "Softening competition through forward trading," Journal of Economic Theory, Elsevier, vol. 116(2), pages 282-293, June.
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    14. Borenstein, Severin & Bushnell, James, 1999. "An Empirical Analysis of the Potential for Market Power in California's Electricity Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 47(3), pages 285-323, September.
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    More about this item

    Keywords

    contracts; cournot competition; competition policy; electricity markets;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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