Forecasting the Competitive Effects of Electric Power Mergers

Thu Jul 01 17:32:54 EDT 2004
Dr. Andrew Joskow

If you live in an area where you can choose your electric company, then chances are very good that you have seen the benefits of competition. Because competition is only beginning to flourish in these markets, the antitrust regulators are paying close attention to mergers and business practices that could affect the competitive dynamics and structure of the industry.

In this chapter from Economics of Antitrust: New Issues, Questions, and Insights, NERA Affiliated Consultant Dr. Andrew Joskow sheds light on the economic models that antitrust agencies have applied to forecast the competitive effects of mergers involving electric power companies. The economic analysis can be quite sophisticated, but as Dr. Joskow explains, the devil is in the details. For the models to be useful, they must account for market factors that can greatly alter the utilities' behavior, including their incentive to withhold capacity from the market and their incentive to enter each others' markets.