Optimal Asset Divestments with Homogeneous Products

29 Pages Posted: 19 Jul 2009 Last revised: 24 May 2013

See all articles by Giulio Federico

Giulio Federico

Chief Economist Team, DG Competition, European Commission

Angel Luis Lopez

Autonomous University of Barcelona; IESE Business School

Abstract

We study alternative market power mitigation measures in a homogenous goods industry where productive assets have asymmetric costs. We characterise the asset divestment by a dominant fi…rm which achieves the greatest reduction in prices (taking the size of the divestment as given). The optimal divestment entails the sale of assets whose costs are close to the post-divestment price (i.e. they are price-setting). A divestment of this type can be several times more e¤ective in reducing prices than divestments of low-cost assets. We also establish that virtual divestments (often employed in the power industry) are at best equivalent to low-cost divestments in terms of their impact on consumer welfare, and cannot replicate the optimal divestment.

Keywords: divestments, virtual power plants, contracts, market power, electricity, antitrust remedies

JEL Classification: D42, L13, L4, L94

Suggested Citation

Federico, Giulio and Lopez, Angel Luis, Optimal Asset Divestments with Homogeneous Products. International Journal of Industrial Organization, Vol. 31, 2013, Available at SSRN: https://ssrn.com/abstract=1434831 or http://dx.doi.org/10.2139/ssrn.1434831

Giulio Federico

Chief Economist Team, DG Competition, European Commission ( email )

Angel Luis Lopez (Contact Author)

Autonomous University of Barcelona ( email )

Plaça Cívica
Cerdañola del Valles
Barcelona, Barcelona 08193
Spain
34935811528 (Fax)

HOME PAGE: http://angelluislopez.net

IESE Business School

Avenida Pearson 21
Barcelona, 08034
Spain
+ 34 932534200 (ext. 4554) (Phone)

HOME PAGE: http://www.angelluislopez.net

Do you want regular updates from SSRN on Twitter?

Paper statistics

Downloads
91
Abstract Views
963
rank
377,101
PlumX Metrics