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Competition in the German Market for Retail Electricity: An Agent-Based Simulation

In: Innovation Networks for Regional Development

Author

Listed:
  • Malcolm Yadack

    (Universität Hohenheim)

  • Ben Vermeulen

    (Universität Hohenheim)

  • Andreas Pyka

    (Universität Hohenheim)

Abstract
Liberalizing retail energy markets has become a tool for policy makers worldwide to introduce competition into a sector historically characterized by regional monopoly. Opening up the products offered by power retailers to free competition, irrespective of region or distribution network, is expected by policy makers to lead to lower markups and thus lower prices for end customers. We observe that this empirically holds true for industrial customers in Germany, but that markups in the price paid by households have not decreased as a result of increased competition. We apply a methodology of combining simulation modeling with insights obtained from survey data to develop an agent-based simulation of the liberalization of a retail electricity market. In the model, firms adjust prices by adjusting their markups to increase profits. Firms also expand by installing and selling capacity in regions outside of their own. Households are heterogeneous in their preferences and in their geographic position in the simulation. We show that for a wide range of realistic parameter settings, firm markups do not converge to zero in the long run, but flatten out to values possibly even higher than the firms’ initial markups before liberalization. Markups also initially rise before falling and/or stabilizing. This, and the non-linear path of average markups over time, indicate that liberalized markets need not leave end customers better off. Our results imply, however, also that the stability of markups is largely dependent on households’ preferences for their own regional public utility which has implications for new retail business models and investments on the regional level. The results on average markups and household preferences are corroborated by empirical data on the German market.

Suggested Citation

  • Malcolm Yadack & Ben Vermeulen & Andreas Pyka, 2017. "Competition in the German Market for Retail Electricity: An Agent-Based Simulation," Economic Complexity and Evolution, in: Ben Vermeulen & Manfred Paier (ed.), Innovation Networks for Regional Development, pages 255-272, Springer.
    • Handle: RePEc:spr:eccchp:978-3-319-43940-2_11
    DOI: 10.1007/978-3-319-43940-2_11
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    Citations

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    Cited by:

    1. Tao Chen & Qais Alsafasfeh & Hajir Pourbabak & Wencong Su, 2017. "The Next-Generation U.S. Retail Electricity Market with Customers and Prosumers—A Bibliographical Survey," Energies, MDPI, vol. 11(1), pages 1-17, December.
    2. Bustos, Cristian & Watts, David & Olivares, Daniel, 2019. "The evolution over time of Distributed Energy Resource’s penetration: A robust framework to assess the future impact of prosumage under different tariff designs," Applied Energy, Elsevier, vol. 256(C).
    3. Georg Holtz & Christian Schnülle & Malcolm Yadack & Jonas Friege & Thorben Jensen & Pablo Thier & Peter Viebahn & Émile J. L. Chappin, 2020. "Using Agent-Based Models to Generate Transformation Knowledge for the German Energiewende—Potentials and Challenges Derived from Four Case Studies," Energies, MDPI, vol. 13(22), pages 1-26, November.

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