The Effect of Divestitures in the German Electricity Market

TILEC Discussion Paper No. 2011-020

CentER Discussion Paper No. 2011-034

18 Pages Posted: 25 Mar 2011 Last revised: 4 Apr 2011

See all articles by Hannes Weigt

Hannes Weigt

WWZ, Wirtschaftswissenschaftliche Fakultät der Universität Basel

Bert Willems

Tilburg University - Department of Economics - CentER & TILEC; University of Toulouse 1 - Toulouse School of Economics (TSE)

Date Written: March 21, 2011

Abstract

In most liberalized electricity markets, abuse of market power is a concern related to oligopolistic market structures, flaws in market architecture, and the specific characteristics of electricity generation and demand. Several methods have been suggested to improve the competitiveness of the liberalized electricity markets and to reallocate rents from generators to consumers. In this paper we study to what extend divestitures can improve the competitiveness of the electricity market. We quantify the expected developments under different divestiture scenarios for the German market, using Cournot and Supply Function Equilibrium simulations. We find an overall welfare gain in both models and show that those gains are highest if the divested assets are sold to independent and small firms, preventing the formation of additional firms that set prices strategically.

Keywords: Supply Function Equilibrium, Cournot competition, electricity markets, divestitures

JEL Classification: L94, L13, C72, D43

Suggested Citation

Weigt, Hannes and Willems, Bert, The Effect of Divestitures in the German Electricity Market (March 21, 2011). TILEC Discussion Paper No. 2011-020, CentER Discussion Paper No. 2011-034 , Available at SSRN: https://ssrn.com/abstract=1791583 or http://dx.doi.org/10.2139/ssrn.1791583

Hannes Weigt (Contact Author)

WWZ, Wirtschaftswissenschaftliche Fakultät der Universität Basel ( email )

Basel, 4051
Switzerland

HOME PAGE: http://fonew.unibas.ch/

Bert Willems

Tilburg University - Department of Economics - CentER & TILEC ( email )

P.O. Box 90153 Room K308
Tilburg, 5000LE
Netherlands
+31134662588 (Phone)

HOME PAGE: http://www.bertwillems.com

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

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