Vertical disintegration in the European electricity sector: Empirical evidence on lost synergies

Gugler, Klaus and Liebensteiner, Mario and Schmitt, Stephan (2017) Vertical disintegration in the European electricity sector: Empirical evidence on lost synergies. International Journal of Industrial Organization, 52. pp. 450-478. ISSN 0167-7187


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The EU has been promoting unbundling of the transmission grid from other stages of the electricity supply chain with the aim of fostering competition in the upstream stage of electricity generation. At present, ownership unbundling is the predominant form of unbundling in Europe. From a policy perspective, a successful unbundling regime would require that the benefits of increased competition in power generation would at least offset the associated efficiency losses from vertical divestiture. Since evidence on this topic is scarce, this study helps fill this void by empirically estimating the magnitude of economies of vertical integration (EVI) between electricity generation and transmission based on a quadratic cost function. For this purpose we employ unique firm-level panel data of European electricity utilities. Our results confirm the presence of substantial EVI of 14% for the median sized integrated utility. Moreover, EVI tend to increase with firm size.

Item Type: Article
Additional Information: The paper was presented at the following conferences: CRESSE 2015 in Crete, Workshop on Corporate Governance in Network Industries 2015 in Vienna, 37th IAEE International Conference on Energy and the Economy 2014 in New York, Meeting of the Vienna Energy Group in Vienna, ZEW Energy Conference 2014 in Mannheim, and at Workshops on Industrial Economics at University of Gießen and Vienna University of Economics and Business. Special thanks to Robert Weaver whose insightful remarks helped considerably to improve the paper. Moreover we are grateful for comments by two anonymous referees, Michael Böheim, Anne d'Arcy, Tomaso Duso, Georg Erdmann, Georg Götz, Richard Green, Sven Heim, Thomas Triebs, Davide Vannoni, Michael Waterson, and Christoph Weiss.
Keywords: cost function / economies of vertical integration / ownership unbundling / asset specificity / market complexity / electricity
Classification Codes: JEL L22; L25; L51; Q48
Divisions: Departments > Volkswirtschaft > Quantitative Volkswirtschaftslehre
Forschungsinstitute > Regulierungsökonomie
Version of the Document: Accepted for Publication
Variance from Published Version: Typographical
Depositing User: Elena Simukovic
Date Deposited: 07 Dec 2017 08:45
Last Modified: 29 Apr 2019 20:17
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