Horizontal subcontracting and investment in idle dispatchable power plants

Jan Bouckaert; Geert Van Moer

doi:10.1016/j.ijindorg.2017.02.001

Horizontal subcontracting and investment in idle dispatchable power plants

Jan Bouckaert, Geert Van Moer

Economics, Helsinki

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2 Citations (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 language	English
Peer-reviewed scientific journal	International Journal of Industrial Organization
Volume	52
Issue number	May
Pages (from-to)	307-332
Number of pages	26
ISSN	0167-7187
DOIs	https://doi.org/10.1016/j.ijindorg.2017.02.001
Publication status	Published - 05.2017
MoE publication type	A1 Journal article - refereed

Keywords

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

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Horizontal subcontracting and investment in idle dispatchable power plants

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