David Harbord

SPOT MARKET COMPETITION IN THE UK ELECTRICITY INDUSTRY

With particular reference to the structure of the U.K. industry, price competition in a deregulated wholesale market for electricity is modeled as a sealed-bid multiple-unit auction with a random number of units. It is argued that, under the existing regulatory rules, one must expect volatile prices, above marginal cost pricing, and inefficient dispatching. Evidence from the pricing performance of the U.K. industry is presented and shown to be compatible with the model predictions. The authors also discuss alternative regulatory rules and show that offering to supply at marginal cost can be induced as a dominant strategy for all generators, thereby securing efficient dispatching. Copyright 1993 by Royal Economic Society.

Modeling Electricity Auctions

The recent debates over discriminatory versus uniform-price auctions in the UK and elsewhere have revealed an incomplete understanding of the limitations of some popular auction models when applied to real-world electricity markets. This has led certain regulatory authorities to prefer discriminatory auctions on the basis of reasoning from models which are not directly applicable to any existing electricity market. Vickrey auctions, although often recommended by economists, have also been ignored in these debates. This article describes the approach which we believe should be taken to analyzing these issues.

Contracts and Competition in the Pay-TV Market

This paper analyses how contractual arrangement for the sale and resale of premium programming effect competition in the pay-TV market. Competition is less effective when resale contracts specify per-subscriber fees rather than lump-sum payments. When premium programming is sold at terms similar to those observed in the UK, consumers can be made worse off than in the absence of premium programming. A number of potential remedies are considered. A ban on exclusive vertical contracts would intensify downstream competition and transfer the benefits of premium programming to consumers.

Barriers to entry and exit in European competition policy

The analysis of barriers to entry and exit is fundamental to the assessment of market power and market efftciency. A firm or firms may exercise market power for a significant period of time only if barriers to new entry exist. Thus in determining whether or not a proposed merger is against the public interest, or whether a firm (or firms) is abusing monopoly or market power in antitrust cases, analysis of entry conditions is of primary importance. One might therefore expect to see rather extensive and sophisticated analyses of entry conditions, or barriers to entry, in monopoly and merger cases that come before competition authorities in the United States, United Kingdom, or member states of the European Union (EU). One might also expect that competition authorities would have placed a great deal of emphasis and effort on achieving a coherent and consistent framework for the analysis of entry barriers in a manner that makes use of the latest thinking on the subject by industrial organization economists. However, until very recently no competition authority that we are aware of has attempted to formulate a coherent and detailed framework for the analysis of barriers to entry, despite the significant degree of effort that has been put into clarifying the related problems of market definition and the measurement of monopoly or market power.’ While clear and fairly precise statements-and indeed, guidelines or proce*This paper reports on and extends research carried out initially for the UK’s Office of Fair Trading by London Economics. We are grateful to John Vickers, who was part of that project and has contributed to much that is here, and to Z&an Biro for comments on an earlier draft. We have also benefited from the comments of Roger Van den Bergh at the 10th Annual Conference of the European Association for Law and Economics and two anonymous referees. The contents of this paper, however, are the sole responsibility of the authors.