COMPUTABLE EQUILIBRIUM-MODELS AND THE RESTRUCTURING OF THE EUROPEAN ELECTRICITY AND GAS MARKETS

More regulation, not less, is temporarily necessary, if effective comp etition is to be established in network industries. This paradox place s new requirements on computable models: they should provide realistic descriptions of technologies but also of markets and institutions. In dustrial economics and computation of economic equilibrium can help ac hieve this dual requirement. This paper discusses their potential in t he context of the deregulation of the European gas and electricity sec tors. Some key elements of the European legislative process are first presented in order to point out the diversity of institutions that can emerge and to highlight the need to model institutions. Perfect compe tition equilibrium models although institutionally poor are argued to be useful for ex post analysis. Applications of the standard Cournot a nd Bertrand paradigms in ex ante analysis of gas and electricity marke ts are reviewed next. Models combining market power and externalities are then discussed with reference to electricity restructuring. Finall y multistage equilibrium models are introduced in the context of inves tment in gas and electricity. Computation remarks conclude the paper.