How to allocate forward contracts: The case of electricity markets

Maria-Angeles de Frutos and Natalia Fabra

European Economic Review, 2012, vol. 56, issue 3, 451-469

Abstract: Several regulatory authorities worldwide have imposed forward contract commitments on electricity producers as a way to mitigate their market power. In this paper we analyze the impact of such commitments on equilibrium outcomes in a model that reflects important institutional and structural features of electricity markets. We show that, when firms are asymmetric, the distribution of contracts among firms matters. In the case of a single dominant firm, the regulator can be confident that allocating contracts to that firm will be pro-competitive. However, when asymmetries are less extreme, certain contract allocations might yield anti-competitive outcomes by eliminating more competitive equilibria. Our analysis thus suggests that forward contracts should be allocated so as to (virtually) reduce asymmetries across firms.

Keywords: Forward contracts; Discrete supply functions; Electricity markets; Antitrust remedies; Simulations (search for similar items in EconPapers)
JEL-codes: G13 L13 L94 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (53)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:56:y:2012:i:3:p:451-469

DOI: 10.1016/j.euroecorev.2011.11.005

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