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Title:Vertical integration and long-term contracts in risky markets PDF Logo
Authors:Baldursson, Fridrik M.
Fehr, Nils-Henrik M. von der
Issue Date:2007
Series/Report no.:Memorandum, Department of Economics, University of Oslo 2007,01
Abstract:We consider the effects of vertical integration on the performance of long-term and spot markets when spot prices are uncertain and agents are risk averse. We find that vertical integration impairs market performance by increasing the gap between contract and (expected) spot prices. This holds regardless of whether retail prices are fixed or linked to spot prices. Depending upon the characteristics of demand and supply, vertical integration (and long-term contracting) may increase or decrease spot-price volatility.
Subjects:Vertical integration
long-term contracts
spot markets
risk aversion
electricity markets
JEL:A10
Document Type:Working Paper
Appears in Collections:Memorandum, Department of Economics, University of Oslo

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