Competition, Contracts, and Entry in the Electricity Spot Market

Posted: 1 Oct 1998

See all articles by David M. G. Newbery

David M. G. Newbery

University of Cambridge - Department of Applied Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Abstract

The supply function model of the English electricity spot market is extended to include a contract market and contestable entry, both of which have dramatic effects on the determination of equilibrium. I present an analytically tractable model that can be solved with contracts, variable numbers of competitors, and capacity constraints. In the case of constant marginal costs and linear demand, two outcomes are possible: if new plant is the same as existing plant and incumbents have insufficient capacity, entry will occur, but if new plant has lower variable costs, then incumbents can invest to deter entry.

JEL Classification: L94, L14

Suggested Citation

Newbery, David M. G., Competition, Contracts, and Entry in the Electricity Spot Market. Rand Journal of Economics, Vol. 29, No. 4, Winter 1998. Available at SSRN: https://ssrn.com/abstract=109848

David M. G. Newbery (Contact Author)

University of Cambridge - Department of Applied Economics ( email )

Sidgwick Avenue
Cambridge, CB3 9DE
United Kingdom
+44 1223 335 246 (Phone)
+44 1223 335 299 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom
+44 1223 335 246/7 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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