TY - JOUR

T1 - A game theoretic model of the Northwestern European electricity market-market power and the environment

AU - Lise, Wietze

AU - Linderhof, Vincent

AU - Kuik, Onno

AU - Kemfert, Claudia

AU - Östling, Robert

AU - Heinzow, Thomas

N1 - Funding from the EU (contract number NNE5-2001-00519) for the Electricity MarkEt Liberalization In Europe (EMELIE) project as well as funding from the Ministry of Science and Culture in Germany to build the model is gratefully appreciated. We are also grateful for the cautious reading, comments and suggestions provided by an anonymous referee. Any remaining errors are ours.

PY - 2006/10/1

Y1 - 2006/10/1

N2 - This paper develops a static computational game theoretic model. Illustrative results for the liberalising European electricity market are given to demonstrate the type of economic and environmental results that can be generated with the model. The model is empirically calibrated to eight Northwestern European countries, namely Belgium, Denmark, Finland, France, Germany, The Netherlands, Norway, and Sweden. Different market structures are compared, depending on the ability of firms to exercise market power, ranging from perfect competition without market power to strategic competition where large firms exercise market power. In addition, a market power reduction policy is studied where the near-monopolies in France and Belgium are demerged into smaller firms. To analyse environmental impacts, a fixed greenhouse gas emission reduction target is introduced under different market structures. The results indicate that the effects of liberalisation depend on the resulting market structure, but that a reduction in market power of large producers may be beneficial for both the consumer (i.e. lower prices) and the environment (i.e. lower greenhouse gas permit price and lower acidifying and smog emissions).

AB - This paper develops a static computational game theoretic model. Illustrative results for the liberalising European electricity market are given to demonstrate the type of economic and environmental results that can be generated with the model. The model is empirically calibrated to eight Northwestern European countries, namely Belgium, Denmark, Finland, France, Germany, The Netherlands, Norway, and Sweden. Different market structures are compared, depending on the ability of firms to exercise market power, ranging from perfect competition without market power to strategic competition where large firms exercise market power. In addition, a market power reduction policy is studied where the near-monopolies in France and Belgium are demerged into smaller firms. To analyse environmental impacts, a fixed greenhouse gas emission reduction target is introduced under different market structures. The results indicate that the effects of liberalisation depend on the resulting market structure, but that a reduction in market power of large producers may be beneficial for both the consumer (i.e. lower prices) and the environment (i.e. lower greenhouse gas permit price and lower acidifying and smog emissions).

KW - Economics

KW - Electricity market

KW - Environmental impacts

KW - Game theory

KW - Liberalisation

KW - Market power

KW - Northwestern Europe

UR - http://www.scopus.com/inward/record.url?scp=33646724264&partnerID=8YFLogxK

UR - https://www.mendeley.com/catalogue/8270ed5d-884c-3c24-a1cc-7074ab857da9/

U2 - 10.1016/j.enpol.2005.03.003

DO - 10.1016/j.enpol.2005.03.003

M3 - Journal articles

AN - SCOPUS:33646724264

VL - 34

SP - 2123

EP - 2136

JO - Energy Policy

JF - Energy Policy

SN - 0301-4215

IS - 15

ER -