Derivatives and Default Risk
Upstream producers that possess market power, sell forwards with a lengthy duration to regional electricity companies (REC). As part of the liberalization of the electricity market, RECs have been privatized and exposed to a possible bankruptcy threat if spot prices have fallen below their expected value. The downstream firms’ expected profit is larger, when it is less likely to be bailed out, the effect on upstream profits is ambiguous while consumers loose. Options are less welfare increasing than forwards, but the difference is minimal. In the presence of bankruptcy, options are the preferred welfare maximizing market instrument.
|Date of creation:||Jan 2010|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstr. 28, 80539 Munich, Germany|
Web page: http://www.vwl.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
- Mahenc, P. & Salanie, F., 2004. "Softening competition through forward trading," Journal of Economic Theory, Elsevier, vol. 116(2), pages 282-293, June.
- Matti Liski & Juan-Pablo Montero, 2004.
"Forward trading and collusion in oligopoly,"
0412, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- MURPHY, Frederic & SMEERS, Yves, 2005. "Forward markets may not decrease market power when capacities are endogenous," CORE Discussion Papers 2005028, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Green, Richard, 2002.
"Retail Competition and Electricity Contracts,"
Royal Economic Society Annual Conference 2002
93, Royal Economic Society.
- James Bushnell, 2007.
"Oligopoly equilibria in electricity contract markets,"
Journal of Regulatory Economics,
Springer, vol. 32(3), pages 225-245, December.
- Bushnell, James, 2007. "Oligopoly Equilibria in Electricity Contract Markets," Staff General Research Papers 13135, Iowa State University, Department of Economics.
- Catherine D. Wolfram, 1999. "Measuring Duopoly Power in the British Electricity Spot Market," American Economic Review, American Economic Association, vol. 89(4), pages 805-826, September.
- Veronika Grimm & Gregor Zoettl, 2006. "Access to Commitment Devices Reduces Investment Incentives in Oligopoly," Working Paper Series in Economics 25, University of Cologne, Department of Economics.
- Newbery, D. M., 1997.
"Competition, Contracts and Entry in the Electricity Spot Market,"
Cambridge Working Papers in Economics
9707, Faculty of Economics, University of Cambridge.
- David M. Newbery, 1998. "Competition, Contracts, and Entry in the Electricity Spot Market," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 726-749, Winter.
- Blaise Allaz & Jean-Luc Vila, 1993. "Cournot Competition, Forward Markets and Efficiency," Post-Print hal-00511806, HAL.
- Green, Richard, 1997. "Transmission pricing in England and Wales," Utilities Policy, Elsevier, vol. 6(3), pages 185-193, September.
- Bert Willems, 2004. "Cournot Competition, Financial Option markets and Efficiency," Working Papers Department of Economics ces0414, KU Leuven, Faculty of Economics and Business, Department of Economics.
- Allaz Blaise & Vila Jean-Luc, 1993. "Cournot Competition, Forward Markets and Efficiency," Journal of Economic Theory, Elsevier, vol. 59(1), pages 1-16, February.
- David M. Newbery, 1995. "Power Markets and Market Power," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 39-66.
- A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
- Powell, Andrew, 1993. "Trading Forward in an Imperfect Market: The Case of Electricity in Britain," Economic Journal, Royal Economic Society, vol. 103(417), pages 444-53, March.
When requesting a correction, please mention this item's handle: RePEc:lmu:muenec:11317. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tamilla Benkelberg)
If references are entirely missing, you can add them using this form.