Divesting power

Giulio Federico () and Angel L. Lopez
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Giulio Federico: IESE Business School, Postal: Research Division, Av Pearson 21, 08034 Barcelona, SPAIN
Angel L. Lopez: IESE Business School, Postal: Research Division, Av Pearson 21, 08034 Barcelona, SPAIN

No D/812, IESE Research Papers from IESE Business School

Abstract: We study alternative market power mitigation measures in a model where a dominant producer faces a competitive fringe with the same cost structure. We characterise the asset divestment by the dominant firm which achieves the greatest reduction in prices. This divestment entails the sale of marginal assets whose cost range encompasses the post-divestment price. A divestment of this type can be several times more effective in reducing prices than divestments of baseload (or low-cost) assets. We also establish that financial contracts (modeled as Virtual Power Plant schemes) are at best equivalent to baseload divestments in terms of consumer welfare.

Keywords: Divestments; Virtual power plants; contracts; market power; electricity; antitrust remedies (search for similar items in EconPapers)
JEL-codes: D42 L13 L40 L94 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2009-08-01
New Economics Papers: this item is included in nep-com and nep-ene
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ebg:iesewp:d-0812

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