The Effect of Divestitures in the German Electricity Market

H. Weigt, Bert Willems

Research output: Working paperDiscussion paperOther research output

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Abstract

In the most liberalized electricity markets, abuse of market power is a concern related to oligopolistic market structures, flaws in market architecture, and the specific characteristics of electricity generation and demand. Several methods have been suggested to improve the competitiveness of the liberalized electricity markets and to reallocate rents from generators to consumers. In this paper we study to what extend divestitures can improve the competitiveness of the electricity market. We quantify the expected developments under different divestiture scenarios for the German market, using Cournot and Supply Function Equilibrium simulations. We find an overall welfare gain in both models and show that those gains are highest if the divested assets are sold to independent and small firms, preventing the formation of additional firms that set prices strategically.
Original languageEnglish
Place of PublicationTilburg
PublisherEconomics
Volume2011-034
Publication statusPublished - 2011

Publication series

NameCentER Discussion Paper
Volume2011-034

Fingerprint

Divestitures
Electricity market
Competitiveness
Electricity generation
Electricity demand
Market power
Generator
Cournot
Scenarios
Simulation
Small firms
Assets
Market structure
Welfare gains
Market abuse
Divestiture
Supply function equilibrium
Rent

Keywords

  • Supply Function Equilibrium
  • Cournot competition
  • electricity markets
  • divestitures

Cite this

Weigt, H., & Willems, B. (2011). The Effect of Divestitures in the German Electricity Market. (CentER Discussion Paper; Vol. 2011-034). Tilburg: Economics.
Weigt, H. ; Willems, Bert. / The Effect of Divestitures in the German Electricity Market. Tilburg : Economics, 2011. (CentER Discussion Paper).
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Weigt, H & Willems, B 2011 'The Effect of Divestitures in the German Electricity Market' CentER Discussion Paper, vol. 2011-034, Economics, Tilburg.

The Effect of Divestitures in the German Electricity Market. / Weigt, H.; Willems, Bert.

Tilburg : Economics, 2011. (CentER Discussion Paper; Vol. 2011-034).

Research output: Working paperDiscussion paperOther research output

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T1 - The Effect of Divestitures in the German Electricity Market

AU - Weigt, H.

AU - Willems, Bert

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N2 - In the most liberalized electricity markets, abuse of market power is a concern related to oligopolistic market structures, flaws in market architecture, and the specific characteristics of electricity generation and demand. Several methods have been suggested to improve the competitiveness of the liberalized electricity markets and to reallocate rents from generators to consumers. In this paper we study to what extend divestitures can improve the competitiveness of the electricity market. We quantify the expected developments under different divestiture scenarios for the German market, using Cournot and Supply Function Equilibrium simulations. We find an overall welfare gain in both models and show that those gains are highest if the divested assets are sold to independent and small firms, preventing the formation of additional firms that set prices strategically.

AB - In the most liberalized electricity markets, abuse of market power is a concern related to oligopolistic market structures, flaws in market architecture, and the specific characteristics of electricity generation and demand. Several methods have been suggested to improve the competitiveness of the liberalized electricity markets and to reallocate rents from generators to consumers. In this paper we study to what extend divestitures can improve the competitiveness of the electricity market. We quantify the expected developments under different divestiture scenarios for the German market, using Cournot and Supply Function Equilibrium simulations. We find an overall welfare gain in both models and show that those gains are highest if the divested assets are sold to independent and small firms, preventing the formation of additional firms that set prices strategically.

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Weigt H, Willems B. The Effect of Divestitures in the German Electricity Market. Tilburg: Economics. 2011. (CentER Discussion Paper).