Evaluating the Impact of Divestitures on Competition: Evidence from Alberta's Wholesale Electricity Market

David Brown, Andrew Eckert and Blake Shaffer

No 2023-2, Working Papers from University of Alberta, Department of Economics

Abstract: Asset divestitures play a central role in antitrust and competition policy. Despite their importance, empirical evidence on their impacts on market competition is limited. We analyze market power in Alberta's wholesale electricity market, where transitional arrangements that virtually divested generation assets from large incumbents were put in place during market restructuring in the early 2000's and expired at the end of 2020. Subsequently, average peak hour prices rose by 120% the year after their expiry. We demonstrate that nearly two-thirds of this increase can be explained by elevated market power from the large suppliers. Further, exploiting variation in the allocation of the divested assets across heterogeneous firms, we demonstrate that market power execution is elevated when the divested assets are controlled by large strategic firms. Our findings highlight the important role that asset divestitures and their allocations can have on market competition. Our analysis also raises concerns over the ability of restructured electricity markets to facilitate sufficient competition through entry and the potential need for regulatory intervention.

Keywords: Electricity; Market Power; Competition Policy; Divestitures (search for similar items in EconPapers)
JEL-codes: D43 L13 L50 L94 Q40 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2023-01-29
New Economics Papers: this item is included in nep-com, nep-ene, nep-ind and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://sites.ualberta.ca/~econwps/2023/wp2023-02.pdf Full text (application/pdf)

Related works:
Journal Article: Evaluating the impact of divestitures on competition: Evidence from Alberta’s wholesale electricity market (2023)
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:ris:albaec:2023_002

Access Statistics for this paper

More papers in Working Papers from University of Alberta, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Joseph Marchand ().