Article ID Journal Published Year Pages File Type
5077760 International Journal of Industrial Organization 2017 26 Pages PDF
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
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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