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Investments in Electricity Generation Capacity under Different Market Structures with Price Responsive Demand

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  • Anette Boom

Abstract

Investments in Generation Capacities by a social planner, by a monopolist and by two competing firms are compared when electricity demand is uncertain but price responsive. A unit price auction determines the electricity price when firms compete. Firms know the level of demand when they bid their capacities. With simultaneous capacity choices total capacities are always larger than with a monopoly if a subgame perfect equilibrium in pure strategies exists. With sequential capacity choices existence is always ensured and the aggregate capacity is smaller in the duopoly than with a monopolist if capacity costs are very low. Capacities always fall short of the socially efficient level.

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  • Anette Boom, "undated". "Investments in Electricity Generation Capacity under Different Market Structures with Price Responsive Demand," Papers 016, Departmental Working Papers.
    • Handle: RePEc:bef:lsbest:016
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    References listed on IDEAS

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    Cited by:

    1. Boom, Anette & Buehler, Stefan, 2014. "Restructuring the Electricity Industry: Vertical Structure and the Risk of Rent Extraction," Working Papers 02-2014, Copenhagen Business School, Department of Economics.
    2. Emmanuel Dechenaux & Dan Kovenock, 2007. "Tacit collusion and capacity withholding in repeated uniform price auctions," RAND Journal of Economics, RAND Corporation, vol. 38(4), pages 1044-1069, December.
    3. Boom, Anette, 2009. "Vertically integrated firms' investments in electricity generating capacities," International Journal of Industrial Organization, Elsevier, vol. 27(4), pages 544-551, July.

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