Discussion by Natalia Fabra
Universidad Carlos III de Madrid
Toulouse, 2 June 2005
Dual Fuel Competition in the British Electricity Retail Markets
By Richard GreenUniversity of Hull Business School
CEPR-IDEI Conference on The Economics of Electricity Markets. June 2005 2
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 3
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 4
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?
Discussion by Natalia Fabra
Universidad Carlos III de Madrid
Toulouse, 2 June 2005
Dual Fuel Competition in the British Electricity Retail Markets
By Richard GreenUniversity of Hull Business School
