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The Impact of Different Unbundling Scenarios on Wholesale Prices in Energy Markets

Abstract:
A recent highly disputed subject of regulating energy markets in Europe is the unbundling of vertically integrated up-and downstream firms. While legal unbundling is already implemented in most countries and indisputable in its necessity for approaching regulatory aims, continuative models such as ownership unbundling are still ambiguous. The following article contributes to the economic analysis of identifying the differences of these separate types of unbundling by concentrating on competition effects and the possibility to conceal true marginal costs. Via simulation, we find that legal unbundling yields the lowest prices in a market under Cournot competition. Moreover, under Bertrand competition, no differences between legal unbundling and ownership unbundling can be identified. Keywords: Electricity Market Modeling and Simulation, Cournot Competition, Vertical Relations, Unbundling

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis; Electricity – Transmission and Network Management; Electricity – Markets and Prices ; Electricity – Policy and Regulation

JEL Codes:
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
D44 - Auctions
D42 - Market Structure, Pricing, and Design: Monopoly
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Electricity market modeling and simulation, Cournot Competition, Vertical relations, Unbundling

DOI: 10.5547/01956574.33.3.7


Published in Volume 33, Number 3 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.