Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5077760 | International Journal of Industrial Organization | 2017 | 26 Pages |
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.
Related Topics
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Economics, Econometrics and Finance
Economics and Econometrics
Authors
Jan Bouckaert, Geert Van Moer,