Graziano Abrate

The Demand Elasticity Impacts on the Strategic Bidding Behavior of the Electricity Producers

Due to the oligopoly structure of the electricity markets and to the constraints imposed by the transmission network, the producers may exert market power by strategically bidding higher than their marginal costs. This brings market performance far from the perfect competition equilibrium, with higher market clearing price and extra surpluses obtained by the producers. Demand elasticity can significantly affect the market performance contributing to mitigate the strategic bidding behavior of the producers. Compared to other commodity markets, demand elasticity in the electricity markets is low, but even a small increase can result in appreciable improvement of the market performance. The network constraints of the power system play a specific role in determining the oligopoly equilibrium of the gaming behavior of the electricity producers. The model of supply function equilibrium is first applied to a simple three-bus test system for a conceptual analysis and then to a standard IEEE 30-bus test system. The effects of an increase of demand elasticity are assessed, resorting to a set of proper quantitative indexes

Multi-Agent Models for Consumer Choice and Retailer Strategies in the Competitive Electricity Market

The benefit to end-users of electricity, mainly in terms of low prices, is strictly related to the interaction among the consumers themselves and retailers. The literature on retail competition has highlighted possible distortions in market outcomes due to unresponsive demand and boundedly rational consumers. Hence, a model appropriate to represent this aspect of the market is needed. The paper proposes a general model of the interaction among retailers and consumers in the electricity market based on the theory of multi-agent systems. The model incorporates different assumptions concerning the behavior of the players that corresponds to different levels of interaction in determining the market outcomes. The model is validated interpretively by the results provided in terms of Game Theory equilibrium. The results of an extensive set of simulations on a population of 1,000 consumers is presented and discussed.

The Costs of Disposal and Recycling: An Application to Italian Municipal Solid Waste Services

Abrate G., Erbetta F., Fraquelli G. and Vannoni D. The costs of disposal and recycling: an application to Italian municipal solid waste services, Regional Studies. The paper investigates the costs of waste disposal and recycling services by using a well-behaved Composite cost function model. The estimates on a unique sample of more than 500 Italian municipalities highlight that the refuse collection technology exhibits constant returns to scale as well as scope economies between disposal and recycling. As far as the size of the municipality increases, scope economies rise up to 20%, but they are accompanied by overall diseconomies of scale. The findings suggest that, on the one hand, joint management of disposal and recycling should be encouraged and, on the other hand, that strategies aimed at increasing the share of waste sent for recycling would not imply a considerable increase in total costs.

Time-of-use pricing and electricity demand response: evidence from a sample of Italian industrial customers

The introduction of real time pricing in many wholesale market as well as the liberalisation process involving the retail market poses the attention over the measurement of demand response to time differentiated price signals. This paper shows an example of how to estimate elasticities of substitution across time using a sample of Italian industrial customers facing time-of-use (TOU) pricing schemes. The model involves the estimation of a nested constant elasticity of substitution (CES) input demand function, which allows estimating substitutability of electricity usage across hourly intervals within a month and across different months.

Efficiency in the Consolidation of the Italian Water Sector

Despite since the mid-90s the regulation has encouraged horizontal and vertical bundling, the Italian water and sewerage industry is still largely fragmented. This work investigates the potential benefits of the process of consolidation, relying on realistic ex-ante merger hypotheses. A parametric methodology is used to implement the Bogetoft and Wang 2005’s decomposition of potential gains from mergers (J Prod Anal 23:145–171). When looking at strictly technological aspects, results do not provide univocal evidence in favor or against merger strategies, recommending a case-by-case approach in evaluating real merger projects. Moreover, the largest potential gains are due to managerial rather than technological inefficiency, thus their effective ex-post attainment ultimately depend on the ability to tackle the change and on political will.

Size and Density Economies in Refuse Collection

The focus of the paper is to analyze the costs of solid waste collection by applying a well-behaved multiproduct cost function model to a sample of more than 500 Italian municipalities. Beyond shedding light on the presence and on the extent of size (or scale) economies, our aim is to investigate in depth the issue of economies of density, which is still an underexplored topic in the literature. Our cost function specification, by being able to estimate several measures of density economies (such as output density economies, vertical density economies and horizontal density economies), allows to capture the impact of different urbanization models on the costs of refuse collection and disposal. The results of the estimates highlight the presence of output density economies as well as horizontal density economies. Conversely, there is significant and robust evidence of the existence of vertical density diseconomies, which suggests that congestion problems in densely populated councils are severely affecting garbage collection costs. Finally, there is evidence of diseconomies of size, which suggests that aggregating the refusal collection operations of several municipalities would not bring savings in the average costs.

Measuring the potential value of demand response using historical market data

One of the main barriers to the deployment of Demand Response (DR) and Distributed Generation (DG) is the ex-ante assessment of their benefits. The aim of this study is to develop a general framework to evaluate this potential using day-ahead historical market data. We observe that profitability of DR-based strategies can be linked to several market characteristics. Among them are the price levels and the frequency of high levels of prices, the price differentials between consecutive hours and the frequency of high price spikes, the duration of peaks, the variables affecting prices (e.g. load, seasonality, weather, temperature, etc.). Although a single indicator to take into account all the above dimensions is not readily available, we propose to compare different markets in terms of “interesting events” referred to one or more of the above listed dimensions. The empirical analysis is based on five European markets, which present interesting differences in price patterns and are analyzed in order to give some insights on the different technologies and business models which may better exploit the potential of DR. This work shows a methodology which has to be refined in order to draw conclusions for specific sets of customers and technology combinations in order to understand the right price differentials and the possible DR time intervals.

Personal or Product Reputation? Optimizing Revenues in the Sharing Economy:

The emergence of peer-to-peer platforms, known as the sharing economy, has empowered people to market their own products and services. However, there are information asymmetries that make it difficult to evaluate the reputation of the seller a priori. This article examines how sellers have to enhance their personal reputation to optimize revenues. The study proposes a revenue model where, given a frontier that depends on the shared assets, the maximization of revenues depends on reputational factors of the person and of the product. An empirical validation of the framework has been conducted in the context of Airbnb, a popular sharing economy travel platform. The sample comprises 981 establishments across five European cities. The findings suggest the crucial importance of personal reputation along with some distinctive reputational attributes of the product itself. These results emphasize the role of trust and personal branding strategies in peer-to-peer platforms.

Hedonic Hotel Pricing and Quality Signals: Which are the Market Value Drivers in a Transition Phase?

The study aims to uncover the relationships between price setting and reputation building processes through an application of hedonic price function. In coherence with a sustainable approach, the model proposed also includes variables related to land use policies and tourism development strategies. A simultaneous equations model is adopted where both price and quality signals are endogenously determined. This innovative method is appropriate in an emerging urban destination, characterized by an enhancement of the existing hotel industry. The findings reveal that, in accordance with a customer based perspective, a high star category and place uniqueness help explain consumers’ willingness to pay. A premium price is recognized for quality signals directed at balancing intangible aspects related to service provision with hoteliers’ environmental concerns. The results have important marketing implications for the competitiveness of the hospitality industry.

Indicators and Techniques for the Assessment of Market Power in the Electricity Sector

The many intrinsic (economic, physical and engineering) characteristics substantially differentiate the electrical sector from both other commodities and other public utility services. Within this context, the strategic «gaming» of the operators can generate results that are far from competitive efficiency standards. The main purpose of this article is to illustrate the ways simulation techniques can be used to assess the performance of an electrical system. In particular, the paper explores three specific aspects that might increase market inefficiency and need to be carefully considered when setting the regulations. The first aspect regards the natural monopoly asset of the sector, the second the management of the economic externalities created by the physical constraints of the transmission network, within a context that requires real-time matching of supply and demand. Finally the third aspect concerns the efficient management of peaks in demand within a context of non-storability of the product and limited price elasticity of demand.