A two-stage equilibrium model of the European cross-border trade regulation

Abstract

We present a computable model that encompasses several proposals of the "Florence Regulatory Forum" initiated by the European Commission to deal with cross-border trade. Specifically, the model imbeds both the access to the network and congestion issues analysed by the Forum. Access charges reflect the mechanism devised by the Forum, and congestion at the interconnection is managed through the coordinated auction mechanism recently suggested by the European association of Transmission System Operators. The model allows for various domestic regulations of the less competitive part of market, and different degrees of competition in the more competitive market. We illustrate this flexibility on a stylised but extensive numerical example with the view of showing that the model behaves properly, and identifying policy issues to be studied in a more realistic case study.