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A test of vertical economies for non-vertically integrated firms: The case of rural electric cooperatives

Monica L. Greer

Energy Economics, 2008, vol. 30, issue 3, 679-687

Abstract: This paper seeks to evaluate unrealized economies of vertical integration for rural electric cooperatives. Given the well-established network economies that are inherent in the generation, transmission, and distribution of electricity, the coops long-standing choice of market structure is questionable (especially if their strategy is welfare maximization). Organized as either generation-and-transmission or distribution-only, the traditional measures of vertical economies will not work. Thus, I have devised an alternative method by which to measure such economies and find that, on average, cost savings in excess of 39% could have been realized had the coops adopted a vertically integrated structure.

Date: 2008
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