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Article Title: Competition in the British Electricity Spot Market
Specialization Codes: 6.10 - Policy and Regulation,
Authors: Richard Green and David Newbery
Publication Date: 1992
Description: Most of the British electricity supply industry was privatised in 1990 and for following period two dominant generators supplied bulk electricity to an unregulated ‘pool’. They submit a supply schedule of prices for generation and receive the market clearing price, which varies with demand. Despite claims that this should be highly competitive, we show that the Nash equilibrium in supply schedules implies a high mark-up on marginal cost and substantial deadweight losses. Further simulations, to show the effect of entry by 1994, produce somewhat lower prices, at the cost of excessive entry, while subdividing the generators into five firms would produce better results. The finding that five firms are needed for effective competition has been influential in later privatizations.
Ordering Information: Journal of Political Economy
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