From Liberalization Towards Integration: Have Markups of EU Electricity Firms Changed?

Katholieke Universiteit LICOS Centre for Institutions and Economic Performance Discussion Paper No. 261

36 Pages Posted: 3 Jun 2010

See all articles by Ziga Zarnic

Ziga Zarnic

Organization for Economic Co-Operation and Development (OECD)

Date Written: May 1, 2010

Abstract

This paper presents an ex-post empirical analysis of the impact of European electricity market reforms on markups of firms. The working hypothesis is that further economic integration would bring competition into electricity markets reflected by lower markups of electricity firms. The results show that reforms have gradually reduced the markups, but the markup premium of incumbent firms is on average larger than theoretical models would predict under effective economic integration. Considering regional proximity and heterogeneity of firms along the supply chain, the results suggest that better market access and cross-border arbitrage disciplined the markups, but have not led to competitive market outcomes due to prevailing market concentration and insufficient unbundling of transmission and distribution channels.

Keywords: Economic Integration, Electricity Firms, EU, Price-Cost Margins, Service Market Regulation

JEL Classification: F10, L11, L51, L94

Suggested Citation

Zarnic, Ziga, From Liberalization Towards Integration: Have Markups of EU Electricity Firms Changed? (May 1, 2010). Katholieke Universiteit LICOS Centre for Institutions and Economic Performance Discussion Paper No. 261, Available at SSRN: https://ssrn.com/abstract=1619833 or http://dx.doi.org/10.2139/ssrn.1619833

Ziga Zarnic (Contact Author)

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

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