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Incentives and coordination in vertically related energy markets

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  • Micola, Augusto Rupérez
  • Banal-Estañol, Albert
  • Bunn, Derek W.

Abstract

We present an agent-based model of a multi-tier energy market. We show how reward interdependence between strategic business units within a vertically integrated firm can increase its profits in oligopolistic energy markets. The effects are shown to be distinct from those of the raising rivals' costs model. In our case, higher prices relate to the nature of energy markets, which facilitate the emergence of financial netback effects.

Suggested Citation

  • Micola, Augusto Rupérez & Banal-Estañol, Albert & Bunn, Derek W., 2008. "Incentives and coordination in vertically related energy markets," Journal of Economic Behavior & Organization, Elsevier, vol. 67(2), pages 381-393, August.
    • Handle: RePEc:eee:jeborg:v:67:y:2008:i:2:p:381-393
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    Cited by:

    1. G. Fagiolo & A. Roventini, 2009. "On the Scientific Status of Economic Policy: A Tale of Alternative Paradigms," Voprosy Ekonomiki, NP Voprosy Ekonomiki, issue 6.
    2. Albert Banal-Estañol & Augusto Rupérez Micola, 2009. "Composition of Electricity Generation Portfolios, Pivotal Dynamics, and Market Prices," Management Science, INFORMS, vol. 55(11), pages 1813-1831, November.
    3. Albert Banal-Estañol & Augusto Rupérez-Micola, 2010. "Are agent-based simulations robust? The wholesale electricity trading case," Economics Working Papers 1214, Department of Economics and Business, Universitat Pompeu Fabra.
    4. Banal-Estañol, Albert & Rupérez Micola, Augusto, 2011. "Behavioural simulations in spot electricity markets," European Journal of Operational Research, Elsevier, vol. 214(1), pages 147-159, October.
    5. Richard Meade & Seini O’Connor, 2011. "Comparison of Long-term Contracts and Vertical Integration in Decentralized Electricity Markets," Chapters, in: Jean-Michel Glachant & Dominique Finon & Adrien de Hauteclocque (ed.), Competition, Contracts and Electricity Markets, chapter 4, Edward Elgar Publishing.
    6. Safarzynska, Karolina & van den Bergh, Jeroen C.J.M., 2011. "Industry evolution, rational agents and the transition to sustainable electricity production," Energy Policy, Elsevier, vol. 39(10), pages 6440-6452, October.
    7. Wood, Aaron D. & Mason, Charles F. & Finnoff, David, 2016. "OPEC, the Seven Sisters, and oil market dominance: An evolutionary game theory and agent-based modeling approach," Journal of Economic Behavior & Organization, Elsevier, vol. 132(PB), pages 66-78.
    8. Bunn, Derek & Koc, Veli & Sapio, Alessandro, 2015. "Resource externalities and the persistence of heterogeneous pricing behavior in an energy commodity market," Energy Economics, Elsevier, vol. 48(C), pages 265-275.
    9. Gaivoronskaia, E. & Tsyplakov, A., 2018. "Using a Modified Erev-Roth Algorithm in an Agent-Based Electricity Market Model," Journal of the New Economic Association, New Economic Association, vol. 39(3), pages 55-83.
    10. Azadeh, A. & Skandari, M.R. & Maleki-Shoja, B., 2010. "An integrated ant colony optimization approach to compare strategies of clearing market in electricity markets: Agent-based simulation," Energy Policy, Elsevier, vol. 38(10), pages 6307-6319, October.
    11. Bunn, Derek & Yusupov, Tim, 2015. "The progressive inefficiency of replacing renewable obligation certificates with contracts-for-differences in the UK electricity market," Energy Policy, Elsevier, vol. 82(C), pages 298-309.
    12. Weigt, Hannes, 2009. "A Review of Liberalization and Modeling of Electricity Markets," MPRA Paper 65651, University Library of Munich, Germany.
    13. Weidlich Anke & Veit Daniel, 2008. "Agent-Based Simulations for Electricity Market Regulation Advice: Procedures and an Example," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 228(2-3), pages 149-172, April.
    14. Weidlich, Anke & Veit, Daniel, 2008. "A critical survey of agent-based wholesale electricity market models," Energy Economics, Elsevier, vol. 30(4), pages 1728-1759, July.

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    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L97 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Utilities: General

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