Economic analysis of Electric Power Industry: Competition versus Monopoly

Abstract

In this paper, we characterize and compare the competitive and monopolistic equilibrium paths in an intertemporal economy where the electric power energy can be supplied by using an exhaustible resource such as petroleum or coal, a renewable resouce such as “water”, or a backstop technology such as nuclear fusion. It is shown that the size of the constant rainfall regenerated by nature significantly effects on these equilibrium paths and that the backstop technology is not always used forever. We also find that in all cases but for an exceptional case, monopolist is excessively conservative with respect to the renewable resource as well as the exhaustible, and that during the “final” interval in the exceptional case, the energy prices in competition and monopoly are both equal to the “demand” price at the constant rainfall.