Incentives and Coordination in Vertically Related Energy Markets

WZB-Markets and Politics Working Paper No. SP II 2006-02

26 Pages Posted: 2 Feb 2006

See all articles by Augusto Rupérez Micola

Augusto Rupérez Micola

Universitat Pompeu Fabra

Albert Banal-Estañol

Universitat Pompeu Fabra - Department of Economics and Business (DEB); City University London - Department of Economics

Derek W. Bunn

London Business School

Date Written: January 2006

Abstract

We present an agent-based model of a multi-tier energy market including gas shippers, electricity generators and retailers. We show how reward interdependence between strategic business units within a vertically integrated firm can increase its profits in oligopolistic energy markets. The effects are shown to be distinct from those of the raising rivals' costs model. In our case, higher prices relate to the nature of energy markets, which facilitate the emergence of financial netback effects.

Keywords: Agent-based modeling, energy markets, reward interdependence

JEL Classification: C63, L22, L97

Suggested Citation

Rupérez Micola, Augusto and Banal Estañol, Albert and Bunn, Derek W., Incentives and Coordination in Vertically Related Energy Markets (January 2006). WZB-Markets and Politics Working Paper No. SP II 2006-02, Available at SSRN: https://ssrn.com/abstract=880072 or http://dx.doi.org/10.2139/ssrn.880072

Augusto Rupérez Micola

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

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

Albert Banal Estañol (Contact Author)

Universitat Pompeu Fabra - Department of Economics and Business (DEB) ( email )

Barcelona, 08005
Spain

City University London - Department of Economics ( email )

Northampton Square
London, EC1V 0HB
United Kingdom

Derek W. Bunn

London Business School ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
0207 000 8000 (Phone)

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