Does vertical integration always reduce an electricity retailer’s fixed price offer

Chi-Keung Woo; Kang-Hua Cao; Raymond Li; Steffan Han Qi

doi:10.46557/001c.77897

Does vertical integration always reduce an electricity retailer’s fixed price offer

Chi-Keung Woo
, Kang-Hua Cao
, Raymond Li
, Steffan Han Qi

Research output: Contribution to journal › Article › peer-review

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Abstract

We use a profit-maximizing model of forward pricing, which revealed that an electricity retailer’s fixed price offer (FPO) contains a large forward premium that encourages vertical integration of a generation company and a retailer. However, vertical integration does not always reduce FPOs, particularly when residential customers are segmented by consumption size and price sensitivity. Hence, a proposed merger of a big generation company and a big retailer requires regulatory scrutiny.

Original language	English
Pages (from-to)	1-4
Number of pages	4
Journal	Energy Research Letters
Volume	5
DOIs	https://doi.org/10.46557/001c.77897
Publication status	Published - 2023

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abstract = "We use a profit-maximizing model of forward pricing, which revealed that an electricity retailer{\textquoteright}s fixed price offer (FPO) contains a large forward premium that encourages vertical integration of a generation company and a retailer. However, vertical integration does not always reduce FPOs, particularly when residential customers are segmented by consumption size and price sensitivity. Hence, a proposed merger of a big generation company and a big retailer requires regulatory scrutiny.",

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AB - We use a profit-maximizing model of forward pricing, which revealed that an electricity retailer’s fixed price offer (FPO) contains a large forward premium that encourages vertical integration of a generation company and a retailer. However, vertical integration does not always reduce FPOs, particularly when residential customers are segmented by consumption size and price sensitivity. Hence, a proposed merger of a big generation company and a big retailer requires regulatory scrutiny.

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Does vertical integration always reduce an electricity retailer’s fixed price offer

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