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Price Coordination in Vertically Integrated Electricity Markets: Theory and Empirical Evidence

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  • Bruno Bosco
  • Parisio Lucia
  • Matteo Pelagatti

Abstract

We analyse vertical integration between generators and retailers in electricity markets and we discuss the implications for price decisions of the presence of asymmetric (cost) information in a simple P-A framework. We analyze a situation in which generators post supply bids taking into account the profit of the entire vertically integrated group they belong to. We then discuss the way in which the degree of vertical integration affects this bidding strategy. Using Italian electricity auction data we show how bid prices posted by a pivotal producer are significantly influenced by variables incorporating vertical integration into the econometric model.

Suggested Citation

  • Bruno Bosco & Parisio Lucia & Matteo Pelagatti, 2016. "Price Coordination in Vertically Integrated Electricity Markets: Theory and Empirical Evidence," The Energy Journal, , vol. 37(1), pages 181-194, January.
    • Handle: RePEc:sae:enejou:v:37:y:2016:i:1:p:181-194
    DOI: 10.5547/01956574.37.1.bbos
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    1. James B. Bushnell & Erin T. Mansur & Celeste Saravia, 2008. "Vertical Arrangements, Market Structure, and Competition: An Analysis of Restructured US Electricity Markets," American Economic Review, American Economic Association, vol. 98(1), pages 237-266, March.
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    9. Parisio, Lucia & Bosco, Bruno, 2003. "Market Power and the Power Market: Multi-unit Bidding and (In)Efficiency in Electricity Auctions," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(4), pages 377-401, August.
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    11. Bruno Bosco & Lucia Parisio & Matteo Pelagatti & Fabio Baldi, 2010. "Long-run relations in european electricity prices," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(5), pages 805-832.
    12. Bosco, Bruno & Parisio, Lucia & Pelagatti, Matteo, 2012. "Strategic bidding in vertically integrated power markets with an application to the Italian electricity auctions," Energy Economics, Elsevier, vol. 34(6), pages 2046-2057.
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    Cited by:

    1. Guo, Hongye & Chen, Qixin & Zhang, Yan & Liu, Kai & Xia, Qing & Kang, Chongqing, 2020. "Constraining the oligopoly manipulation in electricity market: A vertical integration perspective," Energy, Elsevier, vol. 194(C).
    2. Caner zdurak & Veysel Ulusoy, 2017. "Impact of Vertical Integration on Electricity Prices in TurkeyImpact of Vertical Integration on Electricity Prices in Turkey," International Journal of Energy Economics and Policy, Econjournals, vol. 7(3), pages 256-267.
    3. Bruno Bosco, 2023. "Trade, equilibrium prices and rents in European auctions for emission allowances," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 25(1), pages 87-113, January.
    4. Bruno Bosco, 2020. "Auctioning C02 Emission Allowances in Europe. A Time Series Analysis of Equilibrium Prices," Working Papers 448, University of Milano-Bicocca, Department of Economics.

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    More about this item

    Keywords

    Regulation; vertical integration; electricity markets; strategic delegation;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General

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