1. Discussion by Natalia Fabra Universidad Carlos III de Madrid Toulouse, 2 June 2005 Dual Fuel Competition in the British Electricity Retail Markets By Richard Green University of Hull Business School

2. CEPR-IDEI Conference on The Economics of Electricity Markets. June 2005 2 Summary Analysis of competition between electricity and gas retailers offering dual fuel: –Evolution of incumbents’ market shares –Importance of (firm-specific) consumer switching costs Evidence: –Incumbents retain large market shares despite charging higher prices (positive correlation with switching costs) –The largest new entrants into the gas and electricity sectors are the electricity and gas incumbents, respectively –Vertical integration generation-supply business

3. CEPR-IDEI Conference on The Economics of Electricity Markets. June 2005 3 Summary Static model of competition with switching costs –Switching costs make the incumbent (entrant) less (more) aggressive Larger price differentials; Lower switching rates Logit model of consumer choice Empirical analysis

4. CEPR-IDEI Conference on The Economics of Electricity Markets. June 2005 4 Remarks Dynamic considerations? Welfare analysis? –Dual-fuel deals enhance competition and tend to reduce current prices…but effect on future switching costs and future prices? Dual-fuel deals: –Leverage of market power? –Defensive strategy? –Discrimination device? Vertical integration generation-retailing: –Depending on the state of vertical integration, retail market shares may impact the retailers’ cost of acquiring electricity and gas –In turn, this should affect the intensity (and mode) of downstream competition Incentives for integration between gas and electricity?

5. Discussion by Natalia Fabra Universidad Carlos III de Madrid Toulouse, 2 June 2005 Dual Fuel Competition in the British Electricity Retail Markets By Richard Green University of Hull Business School