Strategic pricing, market entry and competition: Evidence from German electricity submarkets
In German electricity submarkets for residential customers standard contracts offered by former monopolists are the more costly option for customers who have not switched to an alternative contract yet. As most German households are served with this contract type we follow the Limit Pricing theory and show that standard contract price could be used as an instrument to affect competition, in terms of market entries, in the related market. We theoretically derive the optimal price-setting behavior of a price-discriminating incumbent provider and show that under particular circumstances reducing the standard contract price could increases the incumbent's profit. We then analyze our theoretical findings employing data for German retail electricity submarkets using simultaneous equation approach and can find support for our hypothesis. In particular for customers with low consumption and high relative switching costs the results show that the standard contract price can affect market entry whereas for high consumption level customers we have to reject our hypothesis.
|Date of creation:||2011|
|Date of revision:|
|Contact details of provider:|| Postal: L 7,1; D - 68161 Mannheim|
Web page: http://www.zew.de/
More information through EDIRC
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.:
- Riechmann, Christoph, 2000. "Strategic pricing of grid access under partial price-caps -- electricity distribution in England and Wales," Energy Economics, Elsevier, vol. 22(2), pages 187-207, April.
- Milgrom, Paul & Roberts, John, 1982.
"Predation, reputation, and entry deterrence,"
Journal of Economic Theory,
Elsevier, vol. 27(2), pages 280-312, August.
- Paul Milgrom & John Roberts, 1980. "Predation, Reputation, and Entry Deterrence," Discussion Papers 427, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Paul Milgrom & John Roberts, 1997. "Predation, reputation , and entry deterrence," Levine's Working Paper Archive 1460, David K. Levine.
- Evens Salies, 2006.
"Mergers in the GB electricity market: effects on retail charges,"
Documents de Travail de l'OFCE
2006-08, Observatoire Francais des Conjonctures Economiques (OFCE).
- Evens Salies, 2008. "Mergers in the GB electricity market: effects on retail charges," Applied Economics, Taylor & Francis Journals, vol. 40(11), pages 1483-1490.
- Evens Salies, 2006. "Mergers in the GB Electricity Market: Effects on Retail Charges," Sciences Po publications 2006-8, Sciences Po.
- Evens Salies, 2006. "Mergers in the GB Electricity Market: Effects on Retail Charges," Working Papers hal-00972962, HAL.
- Jean Marie Abraham & Martin Gaynor & William B Vogt, 2003.
"Entry and Competition in Local Hospital Markets,"
The Centre for Market and Public Organisation
03/088, Department of Economics, University of Bristol, UK.
- Jean M. Abraham & Martin S. Gaynor & William B. Vogt, 2005. "Entry and Competition in Local Hospital Markets," NBER Working Papers 11649, National Bureau of Economic Research, Inc.
- Jean Abraham & Martin Gaynor & William B. Vogt, 2005. "Entry and Competition in Local Hospital Markets," GSIA Working Papers 1999-E32, Carnegie Mellon University, Tepper School of Business.
- Joseph Farrell & Carl Shapiro, 1988.
"Dynamic Competition with Switching Costs,"
RAND Journal of Economics,
The RAND Corporation, vol. 19(1), pages 123-137, Spring.
- Joseph Farrell and Carl Shapiro., 1988. "Dynamic Competition with Switching Costs," Economics Working Papers 8865, University of California at Berkeley.
- Farrell, Joseph & Shapiro, Carl, 1988. "Dynamic Competition with Switching Costs," Department of Economics, Working Paper Series qt1h02g9q4, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Evens Salies & Catherine Waddams Price, 2004.
"Charges, Costs and Market Power: the Deregulated UK Electricity Retail Market,"
Sciences Po publications
info:hdl:2441/7189, Sciences Po.
- Evens Salies and Catherine Waddams Price, 2004. "Charges, Costs and Market Power: the Deregulated UK Electricity Retail Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 19-36.
- Evens SALIES & Catherine WADDAMS PRICE, 2005. "Charges, Costs and Market Power: the Deregulated UK Electricity Retail Market," Industrial Organization 0508010, EconWPA.
- Evens Salies & Catherine Waddams Price, 2004. "Charges, Costs and Market Power: the Deregulated UK Electricity Retail Market," Post-Print hal-01020109, HAL.
- Ferrari, Stijn & Verboven, Frank, 2010. "Empirical analysis of markets with free and restricted entry," International Journal of Industrial Organization, Elsevier, vol. 28(4), pages 403-406, July.
- Paul Milgrom & John Roberts, 1998.
"Limit Pricing and Entry Under Incomplete Information: An Equilibrium Analysis,"
Levine's Working Paper Archive
245, David K. Levine.
- Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-59, March.
- Felix Höffler & Sebastian Kranz, 2007.
"Imperfect Legal Unbundling of Monopolistic Bottlenecks,"
Bonn Econ Discussion Papers
bgse16_2007, University of Bonn, Germany.
- Felix Höffler & Sebastian Kranz, 2011. "Imperfect legal unbundling of monopolistic bottlenecks," Journal of Regulatory Economics, Springer, vol. 39(3), pages 273-292, June.
- Steven T. Berry & Joel Waldfogel, 1999.
"Free Entry and Social Inefficiency in Radio Broadcasting,"
RAND Journal of Economics,
The RAND Corporation, vol. 30(3), pages 397-420, Autumn.
- Steven Berry & Joel Waldfogel, 1996. "Free Entry and Social Inefficiency in Radio Broadcasting," NBER Working Papers 5528, National Bureau of Economic Research, Inc.
- Thomas Gehrig & Rune Stenbacka, 2004. "Differentiation-Induced Switching Costs and Poaching," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 635-655, December.
- Stiglitz, J E, 1979. "Equilibrium in Product Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 69(2), pages 339-45, May.
- Timothy F. Bresnahan & Peter C. Reiss, 1990. "Entry in Monopoly Market," Review of Economic Studies, Oxford University Press, vol. 57(4), pages 531-553.
- Klemperer, Paul D, 1987. "Entry Deterrence in Markets with Consumer Switching Costs," Economic Journal, Royal Economic Society, vol. 97(388a), pages 99-117, Supplemen.
When requesting a correction, please mention this item's handle: RePEc:zbw:zewdip:11068. 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: (ZBW - German National Library of Economics)
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.