Economies of vertical integration in the Swiss electricity sector

Over the last two decades, several European nations have introduced reforms to their electricity sector. Generally, these reforms require a legal and functional unbundling of vertically integrated companies. These unbundling processes may reduce the possibilities that exist to fruitfully exploit the...

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Bibliographic Details
Published in:Energy economics 2010-11, Vol.32 (6), p.1325-1330
Main Authors: Fetz, Aurelio, Filippini, Massimo
Format: Article
Language:English
Subjects:
Applied sciences
Cost
Cost structure
Econometrics
Economic data
Economics
Economies of scale
Economies of vertical integration
Economies of vertical integration Electric utilities Panel data models Unbundling Unobserved heterogeneity
Electric energy
Electric power
Electric utilities
Electricity
Empirical analysis
Energy
Energy economics
Energy industry
Estimates
Exact sciences and technology
General, economic and professional studies
Heterogeneity
Investments
Nations
Panel data models
Reform
Risk
Specifications
Studies
Switzerland
Transaction costs
Unbundling
Unobserved heterogeneity
Vertical integration
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Summary:Over the last two decades, several European nations have introduced reforms to their electricity sector. Generally, these reforms require a legal and functional unbundling of vertically integrated companies. These unbundling processes may reduce the possibilities that exist to fruitfully exploit the advantages of vertical integration. The goal of this paper is to empirically analyze the presence of economies of scale and vertical integration in the Swiss electricity sector. Economies of vertical integration between electricity production and distribution result from reduced transaction costs, better coordination of highly specific and interdependent investments and less financial risk. Different econometric specifications for panel data, including a random effects and a random-coefficients model, have been used to estimate a quadratic multi-stage cost function for a sample of electricity companies. The empirical results reflect the presence of considerable economies of vertical integration and economies of scale for most of the companies considered in the analysis. Moreover, the results suggest a variation in economies of vertical integration across companies due to unobserved heterogeneity.
ISSN:0140-9883
1873-6181
DOI:10.1016/j.eneco.2010.06.011