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Industry Restructuring, Mergers, And Efficiency: Evidence From Electric Power

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  • Kwoka, J.
  • Pollitt, M.

Abstract

This paper analyses the performance impact of the merger wave which took place in the US electricity industry during the period 1994-2003. It does so by analyzing the impact on operating and total cost in electricity distribution. While there are past studies of efficiency and productivity effects, as well as of prices, profits, and other outcomes, this study differs in several ways. First, the database consists of many merging and non-merging firms, rather than only a few on which to base inferences. Second, all of these mergers arise in a single industry, greatly facilitating controlled comparison. Third, we have data on the several years of pre-merger and post-merger efficiency of the specific merging units, unlike virtually all past studies. And finally, we employ a powerful nonparametric technique - data envelopment analysis - to measure the efficiency of each operating unit. The results indicate that electricity mergers are not consistent with improved cost performance.

Suggested Citation

  • Kwoka, J. & Pollitt, M., 2007. "Industry Restructuring, Mergers, And Efficiency: Evidence From Electric Power," Cambridge Working Papers in Economics 0725, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:0725
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    File URL: http://www.electricitypolicy.org.uk/pubs/wp/eprg0708.pdf
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    References listed on IDEAS

    as
    1. Paul L. Joskow, 2003. "The Difficult Transition to Competitive Electricity Markets in the U.S," Working Papers 0308, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
    2. Kira R. Fabrizio & Nancy L. Rose & Catherine D. Wolfram, 2007. "Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on US Electric Generation Efficiency," American Economic Review, American Economic Association, vol. 97(4), pages 1250-1277, September.
    3. Karl Markiewicz & Nancy L. Rose & Catherine Wolfram, 2004. "Does Competition Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency," Working Papers EP67, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    4. Berry, S Keith, 2000. "Excess Returns in Electric Utility Mergers during Transition to Competition," Journal of Regulatory Economics, Springer, vol. 18(2), pages 175-188, September.
    5. repec:reg:rpubli:207 is not listed on IDEAS
    6. Jamasb, T. & Pollitt, M., 2000. "Benchmarking and regulation: international electricity experience," Utilities Policy, Elsevier, vol. 9(3), pages 107-130, September.
    7. Jamasb, Tooraj & Pollitt, Michael, 2003. "International benchmarking and regulation: an application to European electricity distribution utilities," Energy Policy, Elsevier, vol. 31(15), pages 1609-1622, December.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Kristof De Witte & Elbert Dijkgraaf, 2007. "Mean and Bold?," Tinbergen Institute Discussion Papers 07-092/3, Tinbergen Institute.
    2. John Kwoka, 2008. "Restructuring the U.S. Electric Power Sector: A Review of Recent Studies," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 32(3), pages 165-196, May.
    3. Tovar, Beatriz & Javier Ramos-Real, Francisco & de Almeida, Edmar Fagundes, 2011. "Firm size and productivity. Evidence from the electricity distribution industry in Brazil," Energy Policy, Elsevier, vol. 39(2), pages 826-833, February.
    4. Francesc Trillas, 2008. "Regulatory federalism in network industries," Working Papers 2008/8, Institut d'Economia de Barcelona (IEB).
    5. Slabá, Monika & Gapko, Petr & Klimešová, Andrea, 2013. "Main drivers of natural gas prices in the Czech Republic after the market liberalisation," Energy Policy, Elsevier, vol. 52(C), pages 199-212.
    6. Pollitt, Michael, 2008. "The arguments for and against ownership unbundling of energy transmission networks," Energy Policy, Elsevier, vol. 36(2), pages 704-713, February.
    7. Francesc Trillas, 2008. "Regulatory federalism in network industries," Working Papers 2008/8, Institut d'Economia de Barcelona (IEB).
    8. Gaunt, C.T., 2008. "Electricity distribution industry restructuring in South Africa: A case study," Energy Policy, Elsevier, vol. 36(9), pages 3448-3459, September.
    9. Growitsch, Christian & Müller, Gernot & Stronzik, Marcus, 2008. "Ownership Unbundling in der Gaswirtschaft: Theoretische Grundlagen und empirische Evidenz," WIK Discussion Papers 308, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.

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    More about this item

    Keywords

    mergers; efficiency analysis; electricity distribution; data envelopment analysis.;
    All these keywords.

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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