Temporary bottlenecks, hydropower and acquisitions

Abstract

The purpose of this article is to study the effects of an acquisition in a hydro power system with temporary bottlenecks. We apply a model with four markets: two regions and two time periods. It is shown that an acquisition has an ambiguous effect on welfare. In some instances it would lead to larger differences in prices between different markets, which would lead to an increase in the dead weight loss. In other instances an acquisition would lead to a reduction in price differences between different markets. This may happen if the dominant firm acquires a firm that is active in the market where the dominant firm used to dump its production before the acquisition took place.