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Vertical integration and capacity investment in the electricity sector

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  • David P. Brown
  • David E. M. Sappington

Abstract

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

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  • David P. Brown & David E. M. Sappington, 2022. "Vertical integration and capacity investment in the electricity sector," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(1), pages 193-226, February.
    • Handle: RePEc:bla:jemstr:v:31:y:2022:i:1:p:193-226
    DOI: 10.1111/jems.12445
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    Cited by:

    1. David P. Brown & David E. M. Sappington, 2023. "Employing gain-sharing regulation to promote forward contracting in the electricity sector," Journal of Regulatory Economics, Springer, vol. 63(1), pages 30-56, April.
    2. Jessica Coria & Jūratė Jaraitė, 2024. "Vertical Integration in Tradable Green Certificate Markets," CESifo Working Paper Series 11079, CESifo.

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    More about this item

    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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