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Divesting power

Author

Listed:
  • Federico, Giulio

    (IESE Business School)

  • Lopez, Angel L.

    (IESE Business School)

Abstract

We study alternative market power mitigation measures in a model where a dominant producer faces a competitive fringe with the same cost structure. We characterise the asset divestment by the dominant firm which achieves the greatest reduction in prices. This divestment entails the sale of marginal assets whose cost range encompasses the post-divestment price. A divestment of this type can be several times more effective in reducing prices than divestments of baseload (or low-cost) assets. We also establish that financial contracts (modeled as Virtual Power Plant schemes) are at best equivalent to baseload divestments in terms of consumer welfare.

Suggested Citation

  • Federico, Giulio & Lopez, Angel L., 2009. "Divesting power," IESE Research Papers D/812, IESE Business School.
    • Handle: RePEc:ebg:iesewp:d-0812
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    File URL: http://www.iese.edu/research/pdfs/DI-0812-E.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. de Frutos, María-Ángeles & Fabra, Natalia, 2012. "How to allocate forward contracts: The case of electricity markets," European Economic Review, Elsevier, vol. 56(3), pages 451-469.
    2. Weigt, H. & Willems, Bert, 2011. "The Effect of Divestitures in the German Electricity Market," Other publications TiSEM 7bbea5b0-7489-416f-8767-d, Tilburg University, School of Economics and Management.
    3. Federico, Giulio & López, Ángel L., 2013. "Optimal asset divestments with homogeneous products," International Journal of Industrial Organization, Elsevier, vol. 31(1), pages 12-25.

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    More about this item

    Keywords

    Divestments; Virtual power plants; contracts; market power; electricity; antitrust remedies;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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