Working Paper: CEPR ID: DP557
Authors: Richard Green; David M. Newbery
Abstract: The British electricity supply industry has, with the exception of Nuclear Electric, now been privatized. Bulk supplies of electricity are traded between two dominant generators and many suppliers in an unregulated `pool'. The generators submit a supply schedule of prices for each generating set and receive the market clearing price, which varies with demand over time. It has been claimed that such Bertrand competition should be highly competitive, bit we show that the Nash equilibrium in supply schedules implies a high mark-up on marginal cost and very substantial deadweight losses.
Keywords: electricity supply; bertrand competition; supply functions
JEL Codes: 612; 613
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Nash equilibrium in supply schedules (D51) | significant markup on marginal costs (D40) |
| market structure (duopoly) (D43) | pricing behavior (high markup) (D49) |
| market structure (duopoly) (D43) | operating profits (L21) |
| pricing behavior (high markup) (D49) | deadweight losses (H21) |
| more competitive market structure (D49) | reduced inefficiencies (D61) |