Horizontal subcontracting and investment in idle dispatchable power plants

Jan Bouckaert and Geert Van Moer

International Journal of Industrial Organization, 2017, vol. 52, issue C, 307-332

Abstract: We analyze horizontal subcontracting and show how idle production facilities can reduce contracting costs by credibly protecting against hold-up. Our analysis contributes to understanding competition between power firms that increasingly use intermittent generation sources. Their unilateral incentives to invest in maintaining underused units, such as dispatchable gas-fired plants, are underrated by plant profitability indicators. From a policy perspective, decentralized strategic investment incentives reduce the possible need for centralized security of supply measures. Our welfare analysis indicates that quantity competition can lead to a lower market-clearing price than price competition.

Keywords: Horizontal subcontracting; Security of supply; Strategic investment; Intermittent energy sources (search for similar items in EconPapers)
JEL-codes: D43 L13 L14 L94 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167718717301078
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:52:y:2017:i:c:p:307-332

DOI: 10.1016/j.ijindorg.2017.02.001

Access Statistics for this article

International Journal of Industrial Organization is currently edited by P. Bajari, B. Caillaud and N. Gandal

More articles in International Journal of Industrial Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().