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Dual Fuel Competition in the
British Electricity Retail Markets
By Richard Green
University of Hull Business School
Discussion by Natalia Fabra
Universidad Carlos III de Madrid
Toulouse, 2 June 2005
Summary
• Analysis of competition between electricity and gas
retailers offering dual fuel:
– Evolution of incumbents’ market shares
– Importance of (firm-specific) consumer switching costs
• Evidence:
– Incumbents retain large market shares despite charging
higher prices (positive correlation with switching costs)
– The largest new entrants into the gas and electricity
sectors are the electricity and gas incumbents,
respectively
– Vertical integration generation-supply business
CEPR-IDEI Conference on The Economics of Electricity Markets. June 2005
2
Summary
• Static model of competition with switching costs
– Switching costs make the incumbent (entrant) less (more)
aggressive
• Larger price differentials; Lower switching rates
• Logit model of consumer choice
• Empirical analysis
CEPR-IDEI Conference on The Economics of Electricity Markets. June 2005
3
Remarks
•
Dynamic considerations? Welfare analysis?
– Dual-fuel deals enhance competition and tend to reduce current
prices…but effect on future switching costs and future prices?
• Dual-fuel deals:
– Leverage of market power?
– Defensive strategy?
– Discrimination device?
• Vertical integration generation-retailing:
– Depending on the state of vertical integration, retail market shares
may impact the retailers’ cost of acquiring electricity and gas
– In turn, this should affect the intensity (and mode) of downstream
competition
• Incentives for integration between gas and electricity?
CEPR-IDEI Conference on The Economics of Electricity Markets. June 2005
4
Dual Fuel Competition in the
British Electricity Retail Markets
By Richard Green
University of Hull Business School
Discussion by Natalia Fabra
Universidad Carlos III de Madrid
Toulouse, 2 June 2005