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Price coordination in vertically integrated electricity markets. Theory and empirical evidence

Abstract:
We analyse vertical integration between generators and retailers in electricity markets and we discuss the implications for price decisions of the presence of asymmetric (cost) information in a simple P-A framework. We analyze a situation in which generators post supply bids taking into account the profit of the entire vertically integrated group they belong to. We then discuss the way in which the degree of vertical integration affects this bidding strategy. Using Italian electricity auction data we show how bid prices posted by a pivotal producer are significantly influenced by variables incorporating vertical integration into the econometric model.

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis; Energy and the Environment – Policy and Regulation; Energy and the Economy; Energy and the Environment – Environmental Market Design; Energy and the Environment – Climate Change and Greenhouse Gases; Energy and the Economy – Other; Electricity – Generation Technologies

JEL Codes:
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
Q43 - Energy and the Macroeconomy
Q56 - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
Q54 - Climate; Natural Disasters and Their Management; Global Warming
Q49 - Energy: Other
Q2 -

Keywords: Regulation, vertical integration, electricity markets, strategic delegation

DOI: 10.5547/01956574.37.1.bbos

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Published in Volume 37, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.