Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 217: Competition and Prices on the Emerging Nordic Electricity Market

Eirik S. Amundsen (), Lars Bergman () and Bo Andersson
Additional contact information
Eirik S. Amundsen: Department of Economics, Postal: University of Bergen, Fosswinckelsgate 6, N-5007 Bergen, Norway,
Lars Bergman: Dept. of Economics, Stockholm School of Economics, Postal: P.O. Box 6501, S-113 83 Stockholm, Sweden
Bo Andersson: Dept. of Economics, Stockholm School of Economics, Postal: P.O. Box 6501, S-113 83 Stockholm, Sweden

Abstract: The purpose of this paper is to quantitatively evaluate the impact on electricity prices of deregulation and free trade in the Nordic countries. The analysis is focused on the impact of increased competition on market power and the degree of monopolistic pricing. The major tool for our analysis of electricity trade and prices is a numerical multicountry electricity market model in which losses and bottlenecks in the transmission system are taken into account. Moreover both Cournot and perfect competition equilibria with and without free trade in electricity can be simulated. According to the simulation results there are significant differences between the Cournot and perfect competition equilibrium prices under autarky. When inter-country trade is allowed, however, the Cournot equilibrium prices are quite close to the equilibrium prices under perfect competition. Yet the net inter-country physical flows of electricity are small and well within existing transmission capacities.

Keywords: Oligopoly; deregulation; electricity; trade

JEL-codes: D43; F14; L11; L94

11 pages, January 21, 1998

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