Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/208588 
Year of Publication: 
2018
Series/Report no.: 
Working paper No. 8-2018
Publisher: 
Copenhagen Business School (CBS), Department of Economics, Frederiksberg
Abstract: 
This paper studies how competition and vertical structure jointly determine generating capacities, retail prices, and welfare in the electricity industry. Analyzing a model in which demand is uncertain and retailers must commit to retail prices before they buy electricity in the wholesale market, we show that welfare is highest if competition in generation and retailing is combined with vertical separation. Vertically integrated generators choose excessively high retail prices and capacities to avoid rent extraction in the wholesale market when their retail demand exceeds their capacity. Vertical separation eliminates the risk of rent extraction and yields lower retail prices.
Subjects: 
Electricity
Generating Capacities
Vertical Integration
Monopoly
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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