Vertical Arrangements, Market Structure, and Competition: An Analysis of Restructured U.S. Electricity Markets”. CSEM Working Paper WP-126, University of California Energy Institute. Available at www.ucei.org (2006)
| Citations: | 14 - 2 self |
BibTeX
@MISC{Bushnell06verticalarrangements,,
author = {James B. Bushnell and Erin T. Mansur and Celeste Saravia},
title = {Vertical Arrangements, Market Structure, and Competition: An Analysis of Restructured U.S. Electricity Markets”. CSEM Working Paper WP-126, University of California Energy Institute. Available at www.ucei.org},
year = {2006}
}
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Abstract
This paper examines vertical arrangements in electricity markets. Vertically integrated wholesalers, or those with long-term contracts, have less incentive to raise wholesale prices when retail prices are determined beforehand. For three restructured markets, we simulate prices that define bounds on static oligopoly equilibria. Our findings suggest that vertical arrangements dramatically affect estimated market outcomes. Had regulators impeded vertical arrangements (as in California), our simulations imply vastly higher prices than observed and production inefficiencies costing over 45 percent of those production costs with vertical arrangements. We conclude that horizontal market structure accurately predicts market performance only when accounting for vertical structure. (JEL L11, L13, and L94) While rules concerning horizontal market structure form the basis of antitrust policies in most countries, it is widely recognized that horizontal structure comprises only one piece 1 2 of the competition puzzle. Vertical integration and other vertical arrangements between
