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Temporary Bottlenecks, Hydropower and Acquisitions

Jostein Skaar and Lars Sørgard
The Scandinavian Journal of Economics
Vol. 108, No. 3 (Sep., 2006), pp. 481-497
Published by: Wiley on behalf of The Scandinavian Journal of Economics
Stable URL: http://www.jstor.org/stable/4121610
Page Count: 17
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Temporary Bottlenecks, Hydropower and Acquisitions
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Abstract

We apply a model with four markets, two regions and two time periods, to study the effects of an acquisition in a hydropower system with temporary bottlenecks. The effect on welfare is found to be ambiguous. In some instances an acquisition leads to larger differences in prices between markets, which gives rise to an increase in deadweight loss. In other instances it leads to a reduction in price differences between markets, particularly if the dominant firm acquires a firm which was active in the market where the dominant firm used to dump its production before the acquisition.

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