Vertical Integration in the Electricity Supply Industry: Competition and Investment Issues

Conference paper


Mergers or long-term contracts between firms operating in the same industry but at different stages of supply, such as a manufacturing company and a retailer (e. g. oil companies and petrol stations) or a manufacturing company and a supplies of parts (e. g. car companies and their suppliers), have always been of interest to competition authorities. The potential for anticompetitive behavior following vertical mergers is, however, deemed to be less that in the case of horizontal mergers. Nevertheless, in the utilities — electricity, gas, telecommunications and water — the adverse effect of vertical integration on competition could be very important due to the low degree of competition in these sectors in the first place. Thus, natural monopoly characteristics and high sunk costs at one or more stages of supply have traditionally implied high firm concentration and monopolization. This together with state regulation raises the incentive for vertically integrated firms to stifle competition and deter entry in activities which are not naturally monopolistic (Yarrow, 1994; Vickers, 1995).


Electricity Market Vertical Integration Competition Authority Vertical Separation Investment Efficiency 
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