Virtual Divestitures, Will They Make A Difference?: Cournot Competition, Options Markets and Efficiency
Antitrust authorities in Europe and the U.S. oblige dominant generators to virtually divest generation capacity as a way to mitigate market power. This paper analyzes the implementation of such a divestiture of Virtual Power Plants (VPPs), and distinguishes two types: financial VPPs, which are pure insurance contracts on the price for electricity, and physical VPPs, which are contracts for physical delivery of electricity. Our findings show that in a monopoly framework both contracts have the same outcomes whilst in an oligopoly setting both contracts have different effects on the strategic behavior of the players, affecting their competitiveness.