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American Economic Review: Vol. 98 No. 1 (March 2008)
AER Volume. 98, Issue 1 | 
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Vertical Arrangements, Market Structure, and Competition: An Analysis of Restructured US Electricity Markets
Article Citation
Bushnell, James B.,
Erin T. Mansur, and
Celeste Saravia. 2008. "Vertical Arrangements, Market Structure, and Competition: An Analysis of Restructured US Electricity Markets."
American Economic Review,
98(1): 237-66.
DOI: 10.1257/aer.98.1.237
DOI: 10.1257/aer.98.1.237
Abstract
This paper examines vertical arrangements in electricity markets. Vertically
integrated wholesalers, or those with long-term contracts, have less incentive to
raise wholesale prices when retail prices are determined beforehand. For three
restructured markets, we simulate prices that define bounds on static oligopoly
equilibria. Our findings suggest that vertical arrangements dramatically affect
estimated market outcomes. Had regulators impeded vertical arrangements (as
in California), our simulations imply vastly higher prices than observed and
production inefficiencies costing over 45 percent of those production costs with
vertical arrangements. We conclude that horizontal market structure accurately
predicts market performance only when accounting for vertical structure. (JEL
L11, L13, L94)
Article Full-Text Access
Full-text Article
Additional Materials
Download Data Set (5.56 MB) | Link to Additional Materials (821.93 KB)
Authors
Bushnell, James B. (U CA Energy Institute, U CA, Berkeley)
Mansur, Erin T. (Yale U)
Saravia, Celeste (U CA Energy Institute, U CA, Berkeley)
Mansur, Erin T. (Yale U)
Saravia, Celeste (U CA Energy Institute, U CA, Berkeley)
JEL Classifications
L11: Production, Pricing, and Market Structure; Size Distribution of Firms
L13: Oligopoly and Other Imperfect Markets
L94: Electric Utilities
L13: Oligopoly and Other Imperfect Markets
L94: Electric Utilities
