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Electricity markets and oligopolistic behaviors: The impact of a multimarket structure
Institution:1. The New School for Social Research, New York, and University of Bielefeld, Germany;2. Department of Economics and Law, Sapienza University of Rome, Italy;3. Department of Economics, University of Antwerp, Belgium;4. The New School for Social Research, New York, United States;1. Industrial Engineering and Management Sciences, Northwestern University, United States;2. Sustainable Manufacturing System, General Motors, United States;1. Department of Applied Economics, Paris School of Business PSB, 59 rue Nationale, Paris 75013, France;2. Université Paris 8 (LED), 2 rue de la Liberté, 93526 Saint-Denis Cedex, France;3. Sorbonne Business School, 13 rue Watt, 75013 Paris, France
Abstract:The article analyses the development of retail competition in electricity markets, compares market structures and performance in Great Britain and Norway, and concludes that there is no satisfactory outcome in a multimarket setting like Great Britain. We study differences in retail profits between Norway and Great Britain, both considered as benchmarks for competitive markets. We highlight the price parallelism of British suppliers whatever the trend of wholesale prices. These behaviors contrast with the small and stable retail mark-ups in each group of suppliers in Norway. The main explanation comes from the combination of vertical integration and multimarket setting, which allows parallel pricing behaviors in the British retail market. We also evaluate the impact of other factors that influence the dynamic of retail competition: national fuel mixes and institutional design of retail and wholesale markets. However, we demonstrate that a multimarket setting, which is a major feature of most retail markets, remains the main determinant of oligopolistic profit. Remedies must be implemented to correct these market imperfections.
Keywords:Electricity  Competition  Multimarket  Vertical integration  Parallel pricing  Oligopoly profit
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