IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Two stages of uniform delivered pricing and a monopolistic network in competitive electricity markets

Listed author(s):
  • Markus Ksoll


Registered author(s):

    In this contribution we assess the impact of spatial and non-spatial pricing techniques on market outcomes in deregulated electricity supply. Our analytical framework is a combination of the theory of spatial pricing and the theory of vertically related markets. A model of the traditional regional monopolies with vertical integration serves as a point of reference. The deregulated setting is characterized by a monopolistic transmission-network (upstream) and competitive production (downstream). The monoplistic network remains vertically integrated to one of the competitive producers, and serves at the same time as an essential input-facility to all producers, including the downstream-newcomers. The treatment of transport as a distinct market stage with endogenously determinded transmission- or access-rates sets this study apart from common analysis on spatial oligopolies. Specifically, we design two microeconomic models to compare two alternative pricing-arrangements: Uniform delivered pricing downstream and spatial pricing upstream on the one hand versus uniform delivered pricing downstream as well as upstream on the other hand. These options are both being practiced in different countries after deregulation and are subject to an ongoing political debate with little reference being made to theoretical foundations. The findings are threefold: Firstly, the strategic pricing behaviour on both, the monopolistic and the competitive stage is made visible. We show that in either arrangements there is no incentive on the side of the unregulated network-monopolist for complete vertical foreclosure, i.e. to set the network prices in such a way that all competition is excluded from his traditional market area. Secondly, we find that the preferences of consumers and of both types of firms vis-a-vis the spatial or non-spatial pricing policies deviate from those intuitively assumed by a number of authors. Thirdly, and most importantly, it can be shown that the total neglect of spatial components in network-pricing is accompanied by short run-welfare losses. Thus, if the simplification of network-pricing schemes by the abolishment of location- or distance-specific components induces intensified competition and - as the popular argument goes - enhanced productivity in suit, these gains will have to be weighed against the negative welfare effects caused by the disregard of spatial aspects. Too little attention is being paid to the latter side of the named trade-off.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa01p280.

    in new window

    Date of creation: Aug 2001
    Handle: RePEc:wiw:wiwrsa:ersa01p280
    Contact details of provider: Postal:
    Welthandelsplatz 1, 1020 Vienna, Austria

    Web page:

    References listed on IDEAS
    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.:

    in new window

    1. Laffont, Jean-Jacques & Tirole, Jean, 1994. "Access pricing and competition," European Economic Review, Elsevier, vol. 38(9), pages 1673-1710, December.
    2. Paul L. Joskow & Richard Schmalensee, 1988. "Markets for Power: An Analysis of Electrical Utility Deregulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262600188, December.
    3. Bushnell, James B. & Stoft, Steven E., 1997. "Improving private incentives for electric grid investment," Resource and Energy Economics, Elsevier, vol. 19(1-2), pages 85-108, March.
    4. Economides, Nicholas & Salop, Steven C, 1992. "Competition and Integration among Complements, and Network Market Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 105-123, March.
    5. Stephen J. DeCanio, 1984. "Delivered Pricing and Multiple Basing Point Equilibria: A Reevaluation," The Quarterly Journal of Economics, Oxford University Press, vol. 99(2), pages 329-349.
    6. Perry, Martin K., 1989. "Vertical integration: Determinants and effects," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 4, pages 183-255 Elsevier.
    7. Armstrong, Mark & Doyle, Chris & Vickers, John, 1996. "The Access Pricing Problem: A Synthesis," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 131-150, June.
    8. Benjamin F. Hobbs, 1986. "Network Models of Spatial Oligopoly with an Application to Deregulation of Electricity Generation," Operations Research, INFORMS, vol. 34(3), pages 395-409, June.
    9. Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-242, September.
    10. Schuler, Richard E & Hobbs, Benjamin F, 1982. "Spatial Price Duopoly under Uniform Delivered Pricing," Journal of Industrial Economics, Wiley Blackwell, vol. 31(1-2), pages 175-187, September.
    11. Georg Meran & Reimund Schwarze, 2004. "Pitfalls in Restructuring the Electricity Industry," German Economic Review, Verein für Socialpolitik, vol. 5(1), pages 81-101, 02.
    12. Capozza, Dennis R & Van Order, Robert, 1978. "A Generalized Model of Spatial Competition," American Economic Review, American Economic Association, vol. 68(5), pages 896-908, December.
    13. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
    14. Scholer, Klaus, 1989. "Competitive Retailing and Monopolistic Wholesaling in a Spatial Market," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 23(1), pages 19-28.
    15. McBride, Mark E, 1983. "Spatial Competition and Vertical Integration: Cement and Concrete Revisited," American Economic Review, American Economic Association, vol. 73(5), pages 1011-1022, December.
    16. Roger E. Bohn & Michael C. Caramanis & Fred C. Schweppe, 1984. "Optimal Pricing in Electrical Networks over Space and Time," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 360-376, Autumn.
    17. Green, Richard, 1997. "Transmission pricing in England and Wales," Utilities Policy, Elsevier, vol. 6(3), pages 185-193, September.
    18. Economides, Nicholas, 1998. "The incentive for non-price discrimination by an input monopolist," International Journal of Industrial Organization, Elsevier, vol. 16(3), pages 271-284, May.
    19. Gronberg, Timothy & Meyer, Jack, 1981. "Competitive Equilibria in Uniform Delivered Pricing Models," American Economic Review, American Economic Association, vol. 71(4), pages 758-763, September.
    20. Chi-Keung Woo & Debra Lloyd-Zannetti & Ren Orans & Brian Horii & Grayson Heffner, 1995. "Marginal Capacity Costs of Electricity Distribution and Demand for Distributed Generation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 111-130.
    21. Brunekreeft, Gert, 1997. "Open access vs. common carriage in electricity supply," Energy Economics, Elsevier, vol. 19(2), pages 225-238, May.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:wiw:wiwrsa:ersa01p280. 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: (Gunther Maier)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.