Restructuring the Electricity Industry: Vertical Structure and the Risk of Rent Extraction

Anette Boom and Stefan Buehler

No 02-2014, Working Papers from Copenhagen Business School, Department of Economics

Abstract: We study the role of vertical structure in determining generating capacities and retail prices in the electricity industry. Allowing for uncertain demand, we compare three market configurations: (i) integrated monopoly, (ii) integrated duopoly with wholesale trade, and (iii) separated duopoly with wholesale trade. We find that equilibrium capacities and retail prices are such that welfare is highest (lowest) under separated (integrated) duopoly. The driving force behind this result is the risk of rent extraction faced by competing integrated generators on the wholesale market. Our analysis suggests that vertical structure plays an important role in determining generating capacities and retail prices.

Keywords: Electricity; Investments; Generating Capacities; Vertical Integration; Monopoly and Competition (search for similar items in EconPapers)
JEL-codes: D42 D43 D44 L11 L12 L13 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2014-03-14
New Economics Papers: this item is included in nep-com, nep-ene and nep-reg
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Citations: View citations in EconPapers (1)

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Working Paper: Restructuring the Electricity Industry: Vertical Structure and the Risk of Rent Extraction (2014)
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