Electric power oligopoly and suspicious minds - a critique of a recently approved merger

The main purpose of this paper is to discuss the welfare effects of a proposed merger in the Swedish electric power market, using firm level data on power capacity. By using a simulation model we calculate the unilateral effects of the merger on the welfare effects for society. The merger is then evaluated, using a tacit collusion (coordinated effects) framework highlighting important features of the institutional setting. The latter mimics the methodology some European competition authorities use to evaluate mergers in oligopolistic settings, when it is obvious that it is joint dominance, not single dominance that may result. The results from Our simulations suggest that in most cases the unilateral effects will decrease the welfare. The outcome of the qualitative elaboration using the tacit collusion framework basically confirms these results. (c) 2004 Elsevier Ltd. All rights reserved.