Vertical arrangements, market structure, and competition
Subtitle: an analysis of restructured U.S. electricity markets
By: James B. Bushnell, Erin T. Mansur, Celeste Saravia.
Contributors: Mansur, Erin.; Saravia, Celeste.; National Bureau of Economic Research.
Series: NBER working paper series -- working paper 13507.; Working paper series (National Bureau of Economic Research) -- working paper no. 13507.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 56
Subjects: Electricity -- Prices -- United States -- Econometric models; Electric utilities -- Government policy -- Economic aspects -- United States
Description: 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.
Notes: "October 2007."

Includes bibliographical references (p. 40-44).

Also available in PDF from the NBER World Wide Web site (www.nber.org).