Influence of structure and ownership of lignite opencast mine and power plant bilateral monopoly on its operation

Jurdziak, Leszek (2006): Influence of structure and ownership of lignite opencast mine and power plant bilateral monopoly on its operation. Published in: Proceedings of the Fifteenth International Symposium on Mine Planning and Equipment Selection MPES/06 (20. September 2006): pp. 26-31.

Abstract

Lignite mine and power plant can operate as two separate entities, two entities in one holding or joint venture and as the one vertically integrated energy producer. Each of these solutions has the influence on operation of this tandem including realization of its individual and joint objectives, price negotiation, transactional costs, irreversible investments (sunk costs), different access to information (asymmetric information), cooperation or rivalry, possibility of opportunistic behaviour and other threats, which can be used against the second side. An attempt has been made to show these problems from the point of view of economic effectiveness based on a bilateral monopoly (BM) model and game theory approach with usage of pit optimisation methods. Advantages and disadvantages of different solutions have been presented as well as rational incentives to vertical integration due to inherent conflict of individual and group rationality in BM. This conflict of interest can lead to Pareto sub optimal solution in case of lack of cooperation between both sides. Concentration on lignite price can lead to waste of potential profit and decrease of mineable reserves - excavation of smaller pit, which is optimal only to the mine but not to the whole BM.

• Item Type: MPRA Paper
• Additional Information: Paper published in the Proceedings of the Fifteenth International Symposium on Mine Planning and Equipment Selection MPES/06. Ed. by M. Cardu [et al.]. Torino, Italy, 20-22 September, [Vol. 1. Galliate, (NO): FIORDO 2006] s. 26-31.
• Language: English
• Keywords: bilateral monopoly; lignite mine; lignite power plant; price negotitiation; vertical structure; vertical integration; lignite price; opportunism; asymmetry of information; deposit knowledge; ownership structure; cooperative game; zero sum game; non-zero suma game; Pareto optimality; profit division; individual rationality; group rationality; long-term contract
• Subjects: L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L22 - Firm Organization and Market Structure: Markets vs. Hierarchies; Vertical Integration; Conglomerates; Subsidiaries; L - Industrial Organization > L7 - Industry Studies: Primary Products and Construction > L72 - Mining, Extraction, and Refining: Other Nonrenewable Resources; L - Industrial Organization > L4 - Antitrust Issues and Policies > L44 - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations; Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q31 - Demand and Supply; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L14 - Transactional Relationships; Contracts and Reputation; Networks; D - Microeconomics > D4 - Market Structure and Pricing > D43 - Oligopoly and Other Forms of Market Imperfection; Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q4 - Energy > Q41 - Demand and Supply; D - Microeconomics > D4 - Market Structure and Pricing; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L24 - Contracting Out; Joint Ventures; Technology Licensing; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L10 - General; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C78 - Bargaining Theory; Matching Theory; L - Industrial Organization > L4 - Antitrust Issues and Policies > L42 - Vertical Restraints; Resale Price Maintenance; Quantity Discounts; L - Industrial Organization > L0 - General; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information; L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L94 - Electric Utilities; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C71 - Cooperative Games; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L25 - Firm Performance: Size, Diversification and Scope, Age, Profit, and Sales; Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q32 - Exhaustible Resources and Economic Development

References

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