Horizontal subcontracting and investment in idle dispatchable power plants

Jan Bouckaert, Geert Van Moer

Research output: Contribution to journalArticleScientificpeer-review

1 Citation (Scopus)

Abstract

We analyze horizontal subcontracting and show how idle production facilities can reduce contracting costs by credibly protecting against hold-up. Our analysis contributes to understanding competition between power firms that increasingly use intermittent generation sources. Their unilateral incentives to invest in maintaining underused units, such as dispatchable gas-fired plants, are underrated by plant profitability indicators. From a policy perspective, decentralized strategic investment incentives reduce the possible need for centralized security of supply measures. Our welfare analysis indicates that quantity competition can lead to a lower market-clearing price than price competition.
Original languageEnglish
Peer-reviewed scientific journalInternational Journal of Industrial Organization
Volume52
Issue numberMay
Pages (from-to)307-332
Number of pages26
ISSN0167-7187
DOIs
Publication statusPublished - 05.2017
MoE publication typeA1 Journal article - refereed

Keywords

  • 511 Economics
  • Horizontal subcontracting
  • Security of supply
  • Strategic investment
  • Intermittent energy sources

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