01 july 2008, from 11 am to 12.30 pm
GIS LARSEN, campus of Fontenay aux Roses
Speaker : Philipp Wright (Shefflied University)
Summary : Empirical evidence of the behaviour of the UK’s Gas and Electricity markets poses a number of challenges for economists and for regulatory bodies. Firstly, there is really no such thing as a discrete, single ‘gas market’ or a discrete, single ‘electricity market’. Rather, there are a series of interconnected gas markets which are in turn interconnected with electricity markets, and vice versa. Secondly, these markets operate with different time horizons, such that the concept of e.g. ‘the aggregate supply and demand for gas’ have no operational meaning. Thirdly, it is impossible to model/predict the behaviour of these markets because they are subject to shocks which change constantly in terms of nature, duration and timing. Fourthly, and in response, companies have built up positions of ‘portfolio power’, making reliance on measures of ‘market concentration’ to indicate the presence or absence of competition largely redundant. Fifthly, the power of competition is only illusory: consumer switching, no matter how frenetic, exercises little restraint on company power and profitability. Regulated costs play a significant role in price formation. Market ‘signals’ are by-passed. The presentation will develop these themes with empirical evidence from the UK’s gas and electricity markets and also explore their methodological implications.