Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/208576
Year of Publication: 
2014
Series/Report no.: 
Working paper No. 2-2014
Publisher: 
Copenhagen Business School (CBS), Department of Economics, Frederiksberg
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.
Subjects: 
Electricity
Investments
Generating Capacities
Vertical Integration
Monopoly and Competition
JEL: 
D42
D43
D44
L11
L12
L13
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

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