Vertical Integration, Separation and Non-Price Discrimination: An Empirical Analysis of German Electricity Markets for Residential Customers

35 Pages Posted: 26 Jan 2012

See all articles by Vigen Nikogosian

Vigen Nikogosian

ZEW – Leibniz Centre for European Economic Research

Tobias Veith

ZEW – Leibniz Centre for European Economic Research

Date Written: December 1, 2011

Abstract

The literature on vertical integration in markets with regulated upstream prices suggests that the integrated upstream firm might engage in non-price discrimination. Several studies provide policy recommendations derived either from case study approaches or based on theoretical modeling which addresses the unbundling issue. In this study we analyze the impact of vertical integration of retail incumbent and network operator on retail prices and upstream charges. As the vertical structure is heterogeneous across the 850 German electricity submarkets for residential customers (there exist legally unbundled, vertically integrated or fully separated firms), we use firm level data to analyze the effects of different vertical structures and regulation schemes on retail electricity prices. We find significantly higher prices in markets with vertically integrated firms compared to markets with fully separated firms. This finding could indicate non-price discrimination. Furthermore, we find no evidence that legal unbundling eliminates the incentives for non-price discrimination because the prices do not differ from prices in markets under vertical integration.

Keywords: Electricity, Regulation, Vertical Integration, Legal and Total Unbundling, Non- Price Discrimination

JEL Classification: L1, L5, L9

Suggested Citation

Nikogosian, Vigen and Veith, Tobias, Vertical Integration, Separation and Non-Price Discrimination: An Empirical Analysis of German Electricity Markets for Residential Customers (December 1, 2011). ZEW - Centre for European Economic Research Discussion Paper No. 11-069, Available at SSRN: https://ssrn.com/abstract=1991819 or http://dx.doi.org/10.2139/ssrn.1991819

Vigen Nikogosian

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Tobias Veith (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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