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2005 Documento de Trabajo #214

The Competitive Role of the Transmisión System in Price-regulated Power Industries

This note shows how the transmission system can enhance competition in price-regulated power industries, thus extending earlier findings reported in the literature for deregulated industries. In the context of a two-technology, price-regulated power industry, we show that the interconnection of two markets initially supplied by a different monopoly reduces market power and raises welfare. We also show that the capacity of the transmission line plays a key role in determining whether market equilibrium lies closer to competition or monopoly.

Classification JEL: L94, L51

M. Soledad Arellano
Pablo Serra

Keywords: competition., Electricity industry, transmission