Electricity Merger Policy in the Shadow of Regulation

Richard Gilbert and David M Newberry

Department of Economics, Working Paper Series from Department of Economics, Institute for Business and Economic Research, UC Berkeley

Abstract: Electricity mergers pose distinctive challenges for competition policy - in market definition and for modelling price impacts in markets with no storage, inelastic short-run demand and transmission constraints. FERC’s pivotal supply test for screening mergers is an improvement on market shares, but still potentially misleading. We counter-propose competitive residual demand analysis. The EU is poorly placed to deal with domestic mergers that impact external energy flows. The paper argues that vertical (convergent) mergers between electricity and gas raise additional concerns, given current EU gas market power, exemplified by the E.On-Ruhrgas merger. The form of the Emissions Trading System amplifies these concerns.

Date: 2006-10-01
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Working Paper: Electricity Merger Policy in the Shadow of Regulation (2006)
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