Acquisitions in the electricity sector : active vs. passive owners

Abstract

The starting point of this paper is a mixed oligopoly market consisting of n privately owned profit maximizing firm. Motivated by the trend of mergers and acquisitions in the liberalized electricity markets, and by the debate about public or private ownership, the paper looks at two cases. In Case 1, the state-owned company acquires an ownership share in one of the private companies. In Case 2, the state-owned company is partially privatized. The paper focuses on differences in generated quantities and social surplus, dependingon whether the investors behind the acquisitions are behaving as activ or passive owners. One result shows that in the case of partial privatization, passive ownership provides the highest total industry generation, while active ownership induces maximum social surplus.