مشوق ها و هماهنگی در بازارهای انرژی مرتبط به صورت عمودی
|کد مقاله||سال انتشار||تعداد صفحات مقاله انگلیسی||ترجمه فارسی|
|16002||2008||13 صفحه PDF||سفارش دهید|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Economic Behavior & Organization, Volume 67, Issue 2, August 2008, Pages 381–393
We present an agent-based model of a multi-tier energy market. We show how reward interdependence between strategic business units within a vertically integrated firm can increase its profits in oligopolistic energy markets. The effects are shown to be distinct from those of the raising rivals’ costs model. In our case, higher prices relate to the nature of energy markets, which facilitate the emergence of financial netback effects.
This paper studies the vertical relationships between gas and electricity markets. Vertical relationships are those that involve an exchange between sequential stages of the value chain. In the energy industry, gas is an important input for electricity generation, and therefore wholesale natural gas and electricity markets are vertically interrelated. The same is true for wholesale and retail electricity markets since retailers buy electricity from wholesalers (Stern, 1998). Vertical interactions may involve separate firms or different strategic business units (SBUs) within the same firm (Gulati et al., 2005). Vertical integration is widespread among European energy firms. Gas producers often own gas-fired power plants, and many electricity firms consist of generation and retail SBUs (Finon and Midttun, 2004). Mergers between gas and electricity firms are relatively new in the United States, but they are occurring at a rapid pace (Hunger, 2003). Moreover, the merger activity appears to be accelerating as competition opportunities expand, incentive regulation diffuses more widely, and regulators have become less hostile to mergers (Joskow, 2000). Several streams of literature have studied the advantages as well as the disadvantages of vertical integration. Industrial economists have extensively analysed whether vertically related firms could benefit from foreclosing non-integrated rivals (see Rey and Tirole, 2004 for a recent survey).1Ordover et al. (1990), for example, show that a vertically integrated firm in a bilateral duopoly may benefit from disadvantaging its downstream rival.2 The argument runs as follows. If the upstream unit ceases to sell in the input market, its upstream rival will face less competition and raise prices. Higher input prices increase the costs of the non-integrated downstream rival. This firm is forced to reduce production and increase prices. As a result, the vertically integrated firm can increase profits by raising both its end-user market share and price.3 Studies of vertical relationships in energy markets (e.g. Granitz and Klein, 1996 and Bushnell et al., 2005) often explain their findings using this foreclosure argument. However, its logic depends crucially on the firm’s ability either to internalise transactions or to set an internal transfer price that is different from the external (input) market price. In practice, wholesale energy markets are often compulsory, so trading internalisation is not feasible. Moreover, the standard energy market mechanism is the uniform price auction, which seems to make differences between internal and external prices impossible at the outset. Thus, two of the main resting points of the foreclosure or raising rivals’ costs logic are often not present in energy markets. This paper introduces an agent-based simulation model of natural gas and electricity markets. We show how corporate incentives linking the strategic business units within a vertically integrated firm can increase prices in energy markets. The effects are shown to be different from those arising in the standard models of vertical foreclosure. In our case, higher prices are related to the existence of financial netback effects in energy markets. Wholesale natural gas is often priced against wholesale electricity prices, which, in turn, are usually set with reference to retail tariffs. Industry players refer to this financial process as netback or spark spread pricing. The use of netback pricing is well documented in the energy markets literature (for an early discussion, see Moxnes, 1987) and suggests a sequential relationship between energy markets in which gas and electricity markets are cleared in a down-to-upstream sequence. This is in contrast to the Ordover et al.’s “physical flow” formulation, widely adopted by the foreclosure literature, whereby upstream prices are determined before those downstream. Trading is not a simple sequential procedure in most industry supply chains, as it is often iterative and tentative before deals are struck, so that modelling it either way is an abstraction. However, in the energy case, there are good reasons to support netback pricing rather than the physical flow formulation. First, retail prices are generally fixed for longer periods of time than upstream prices. For example, in the UK, retail consumers cannot change supplier during the first 28 days of signing a contract, but upstream prices vary every half hour. Therefore, retailers and generators take downstream prices as given when trading in the wholesale market.4 Second, electricity is non-storable, consumption and generation have to be balanced at all times, but end-users are free to choose volume. As a consequence, information on retail consumption volumes has to flow upwards in the supply chain via prices.5 In this context, it seems plausible that widely used vertical incentives should play a role on the determination of energy prices. The general reward system of an organisation influences the behavioural choices of its members. Bonuses tied to overall profits create incentives for cooperative behaviour both between individuals Zander and Wolfe, 1964 and Wageman and Baker, 1997 and across departments within a firm Petersen, 1992 and Kretschmer and Puranam, in press. For individuals, the more interdependent the task, the more interdependent the reward system should be (Wageman and Baker) because it results in a positive relationship between effectiveness of the integrative devices and organisational performance (Lawrence and Lorsch, 1967). For firms, the importance of cooperation between SBUs grows with their interdependence (Gulati and Singh, 1998) and the higher the inter-unit synergies, the more useful the collaborative incentives are (Kretschmer and Puranam). Collaborative incentives, however, not only encourage cooperation but may also enhance free riding. Indeed, rewards based on aggregate profits hinder the identification of individual performances. As a consequence, individuals have more incentives to shirk hoping that the others will compensate Holmstrom, 1982 and Petersen, 1992.6 Despite the importance of collaborative incentives, the existing literature provides no guidance as to how they should be given to sequential SBUs in vertically integrated energy firms. In order to fill this gap, we consider a setting consisting of two sequential, multiple unit, compulsory, uniform price auctions representing a wholesale and a retail energy market. Although quite realistic, this complex trading environment presents a manifold of non-Pareto ranked Nash equilibria (von der Fehr and Harbord, 1993). To achieve predictions, we adopt an inductive selection method based on the adaptive theory of reinforcement learning put forward by Roth and Erev (1995). The agent-based simulations show that coordination overcomes the potential disadvantages of broad collaborative incentives due to the large interdependences between energy markets. More importantly, our results uncover a simple but powerful mechanism to exert vertical market power. Using collaborative incentives that link the reward to the performance of the different SBUs, vertically integrated firms induce higher prices and achieve higher profit. These observable outcomes are similar to those of the foreclosure argument. Closer inspection, however, reveals that our downstream SBU behaves less competitively, increasing downstream prices at the expense of market share rather than taking advantage of the rivals’ higher costs, as in the foreclosure argument. Moreover, the upstream SBU behaves more competitively and benefits from the higher prices downstream. The remainder of the paper is organised as follows. Section 2 outlines the agent-based simulation model. Section 3 presents the results, which are extended in Section 4. A short discussion follows in Section 5.
نتیجه گیری انگلیسی
The existence of interdependences between vertically related SBUs has become a bedrock in the business strategy literature, yet we know relatively little about the forces shaping these interdependences and their effects. A set of agent-based simulations identifies one such effect in the de-regulated energy industry. Reward interdependences between SBUs lead to trading coordination and higher prices. Under tight reward interdependence structures, vertically integrated firms increase the scope for upstream profits. This leads to strategic behaviour with the superficial appearance of foreclosure, but based on a quite different principle. This paper adds to the preceding literature in at least three ways. Methodologically, we are not aware of any other multi-tier energy simulations driven by netback principles in the literature. The financial dependence between electricity and natural gas markets does not seem to be captured by the classical models of vertical foreclosure, where causal pricing relationships are sequential from the upstream to the downstream segment. The second contribution relates to the literature on the sources of vertical market power in the energy industry (e.g. Bushnell et al., 2005, Granitz and Klein, 1996 and Kühn and Machado, 2004). The simulations suggest a new mechanism to solve the puzzle of how vertical market power appears in some energy markets where it should not. The downstream unit submits higher bids and increases retail prices. As a result, the range of possible upstream prices also increases. Then, the upstream unit stays on the baseload part of the supply curve, increases its market share and allows its opponent to increase wholesale prices. Hence, vertical market power emerges in a compulsory, uniform price auction without trading internalisation or price discrimination. Thirdly, the research identifies a link between internal incentive structures, SBU behaviour and firm performance. Reward interdependence has been shown to be an instrument leading to market power via higher vertical SBU coordination. Ways in which reward interdependences can be articulated include direct bonuses and stock options, and casual evidence indicates that these are widespread in the energy industry. It is interesting to note that such reward interdependence contracts are internal to the firm and, hence, normally fall outside the scope for regulatory intervention. Whether firms use them explicitly as a way of aligning their interests to those of their SBU employees is an interesting question for future empirical work.