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Vertical Integration and Capacity Investment in the Electricity Sector

Author

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  • Brown, David P.

    () (University of Alberta, Department of Economics)

  • Sappington, David E.M.

    () (University of Florida)

Abstract

We examine the incentives for and the effects of vertical integration in the electricity sector. We find that vertical integration generally reduces retail prices and increases industry capacity investment, consumer surplus, and total welfare. Unilateral vertical integration is pro table, so it arises in equilibrium. However, ubiquitous vertical integration can reduce aggregate industry pro fit.

Suggested Citation

  • Brown, David P. & Sappington, David E.M., 2020. "Vertical Integration and Capacity Investment in the Electricity Sector," Working Papers 2020-5, University of Alberta, Department of Economics.
  • Handle: RePEc:ris:albaec:2020_005
    as

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    File URL: https://sites.ualberta.ca/~econwps/2020/wp2020-05.pdf
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    References listed on IDEAS

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    3. David P. Brown & Andrew Eckert, 2017. "Electricity market mergers with endogenous forward contracting," Journal of Regulatory Economics, Springer, vol. 51(3), pages 269-310, June.
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    5. Aïd, René & Chemla, Gilles & Porchet, Arnaud & Touzi, Nizar, 2011. "Hedging and Vertical Integration in Electricity Markets," CEPR Discussion Papers 8313, C.E.P.R. Discussion Papers.
    6. Boom, Anette, 2009. "Vertically integrated firms' investments in electricity generating capacities," International Journal of Industrial Organization, Elsevier, vol. 27(4), pages 544-551, July.
    7. Anette Boom & Stefan Buehler, 2020. "Vertical structure and the risk of rent extraction in the electricity industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(1), pages 210-237, January.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Vertical Integration; Capacity Investment; Electricity Sector;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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