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Use and abuse of regulated prices in electricity markets: “How to regulate regulated prices?”

David Martimort (), Jérôme Pouyet and Carine Staropoli ()
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Jérôme Pouyet: ESSEC Business School - Essec Business School, THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université
Carine Staropoli: UP1 - Université Paris 1 Panthéon-Sorbonne, PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: We consider the regulation of the tariffs charged by a public utility in the electricity sector. Consumers differ in terms of their privately known demands. When regulating a firm's tariffs, the government is concerned by the redistribution across consumer classes. A conflict between redistribution and screening induces pricing distortions when the firm is a monopoly. Introducing competition with an unregulated fringe improves efficiency but jeopardizes redistribution. In response to this problem, the government may now want to manipulate information about the incumbent's cost to restrict entry and better promote its own redistributive objective. To prevent such obstacle to entry, the government's discretion in fixing the incumbent's regulated tariffs should be restricted by imposing floors or caps on those tariffs and/or by controlling the market share left to the competitive fringe. We highlight the determinants of such limits on discretion and unveil to what extent they depend on the government's redistributive concerns.

Date: 2020-07
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-02936721
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Published in Journal of Economics and Management Strategy, Wiley, 2020, 29 (3), pp.605-634. ⟨10.1111/jems.12383⟩

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Journal Article: Use and abuse of regulated prices in electricity markets: “How to regulate regulated prices?” (2020) Downloads
Working Paper: Use and abuse of regulated prices in electricity markets: “How to regulate regulated prices?” (2020)
Working Paper: Use and Abuse of Regulated Prices in Electricity Markets: "How to Regulate Regulated Prices?" (2019) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02936721

DOI: 10.1111/jems.12383

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