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On the Allocative Efficiency of Ownership Unbundling

Author

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  • Bolle, Friedel
  • Breitmoser, Yves

Abstract

We analyze vertical structures where a regulated network operator serves n network users, and the network users compete in quantities for customers. We distinguish two cases: (i) none of the network users are related to the network operator (ownership unbundling), (ii) one of the network users is partially integrated with the operator and the others are disintegrated (legal unbundling). We seek to understand when ownership unbundling leads to lower customer prices, and formalize necessary conditions. In general, legal unbundling implies a less effective regulation, but it reduces the degree of market distortion caused by the difference between marginal costs and average costs (= regulated prices of network usage). We find that the necessary condition is not satisfied for realistic values of the relevant parameters, i.e. legal unbundling leads to lower costumer prices than ownership unbundling in most relevant markets.

Suggested Citation

  • Bolle, Friedel & Breitmoser, Yves, 2006. "On the Allocative Efficiency of Ownership Unbundling," Discussion Papers 255, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
  • Handle: RePEc:zbw:euvwdp:255
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    File URL: https://www.econstor.eu/bitstream/10419/23824/1/255_Bolle_Breitmoser.pdf
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    References listed on IDEAS

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    1. van Koten, S. & Ortmann, A., 2008. "The unbundling regime for electricity utilities in the EU: A case of legislative and regulatory capture?," Energy Economics, Elsevier, vol. 30(6), pages 3128-3140, November.
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    Cited by:

    1. Cremer Helmuth & De Donder Philippe, 2013. "Network Investment under Legal and Ownership Unbundling," Review of Network Economics, De Gruyter, vol. 12(1), pages 27-59, March.
    2. Paul Nillesen & Michael Pollitt, 2011. "Ownership Unbundling in Electricity Distribution: Empirical Evidence from New Zealand," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(1), pages 61-93, January.
    3. Elena Argentesi & Albert Banal-Estanol & Jo Seldeslachts & Meagan Andrews, 2017. "A Retrospective Evaluation of the GDF/Suez Merger: Effects on Gas Hub Prices," Discussion Papers of DIW Berlin 1664, DIW Berlin, German Institute for Economic Research.
    4. Anette Boom, 2012. "Vertikale Entflechtung in der Stromwirtschaft," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 81(1), pages 57-71.
    5. Pollitt, Michael, 2008. "The arguments for and against ownership unbundling of energy transmission networks," Energy Policy, Elsevier, vol. 36(2), pages 704-713, February.
    6. Lindemann, Henrik, 2015. "Regulatory Objectives and the Intensity of Unbundling in Electricity Markets," Hannover Economic Papers (HEP) dp-544, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    7. Gugler, Klaus & Rammerstorfer, Margarethe & Schmitt, Stephan, 2013. "Ownership unbundling and investment in electricity markets — A cross country study," Energy Economics, Elsevier, vol. 40(C), pages 702-713.
    8. Nikogosian, Vigen & Veith, Tobias, 2011. "Vertical integration, separation and non-price discrimination: An empirical analysis of German electricity markets for residential customers," ZEW Discussion Papers 11-069, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

    More about this item

    Keywords

    Unbundling; vertical integration; Cournot competition;

    JEL classification:

    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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