The industrial organization of horizontal subcontracting with applications to electricity markets
4 June 2018
University of Antwerp, Promotiezaal Grauwzusters - Lange Sint-Annastraat 7 - 2000 Antwerp (route: UAntwerpen, Stadscampus
Geert Van Moer
Prof Jan Bouckaert
PhD defence Geert Van Moer - Faculty of Applied Economics
This dissertation consists of four contributions on the industrial organization of horizontal subcontracting. Horizontal subcontracts are outsourcing agreements between competing firms. They are increasingly common in a wide range of industries. For example, an electricity producer may, at some point in time, have only little wind power available. To serve its consumers on a stand-alone basis, the producer would need to dispatch other production units, such as e.g. gas-fired plants, that are characterized by a higher production cost. However, rather than producing all required electricity in-house, the producer can also purchase electricity on the market. A possible trading partner would be another, competing producer who operates wind mills located in an area that is wind-abundant at that point in time.
Horizontal subcontracting raises a number of policy-relevant questions. What are the effects of a merger between firms, taking into account that firms can already supply each other before the merger? Given that firms can purchase from their competitors, what are their incentives to invest in back-up production facilities? Should we subsidize plants that contribute to the security of electricity supply? And what happens if firms do not wait for the secondary market to trade with each other, but instead already take positions on forward markets? This dissertation obtains new insights on these questions and shows how horizontal subcontracting interacts with some classic insights in the field of industrial organization.