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Evaluation of Electric Power Deregulation Using Network Models of Oligopolistic Spatial Markets

  • Benjamin F. Hobbs
  • Richard E. Schuler
Conference paper
  • 45 Downloads
Part of the Lecture Notes in Economics and Mathematical Systems book series (LNE, volume 249)

Abstract

Proposals have been made to deregulate the power generation function of electric utilities. But unregulated generators would be spatial oligopolists, because transmission costs would insulate them from competition from distant producers. The purpose of this analysis is to estimate the degree to which unregulated power generators would be able to exercise market power. This is accomplished by calculating spatial price equilibria for a hypothetical deregulated power market in New York State. Two types of equilibria are calculated: Nash/Bertrand equilibria, representing a lower bound to unregulated prices, and limit pricing, defining an upper bound. Equilibria are obtained for the years 1980 and 2000.

The model show that, on average, prices would increase under deregulation to level that are closer to marginal cost than regulated prices. Consequently, social welfare, defined as the sum of consumer and procedure surplus, increases, but profits increase even more. Nevertheless, costumer of high-cost utilities in the region would enjoy the lower prices under deregulation, which would threaten those utilities with bankruptcy.

Keywords

Marginal Cost Limit Price Transmission Cost Lower Marginal Cost Coal Plant 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer-Verlag Berlin Heidelberg 1985

Authors and Affiliations

  • Benjamin F. Hobbs
    • 1
  • Richard E. Schuler
    • 2
  1. 1.Department of Systems EngineeringCase Western Reserve UniversityClevelandUSA
  2. 2.Department of Economics Department of Environmental EngineeringCornell UniversityIthacaUSA

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