F&ES 890b/MGT 820

Energy Markets Strategy (2nd half semester course)

half semester course March 25-May 14

In the past thirty years, energy markets have changed from quiet, often heavily regulated areas of the business landscape to some of the most dynamic markets in the world economy. Regulation of oil, natural gas, motor fuel, and electricity markets has been reduced dramatically in the United States and in many other countries. Electricity deregulation swept the industrialized and developing world, but it is now associated with the 2000–2001 California electricity crisis and the 2001–2002 Enron scandal. Oil prices have reached record levels with great uncertainty about where they are headed. Drawing on the tools of economics, we study the business and public policy issues that these changes have raised. Topics include the political economy of deregulation, competition in wholesale electricity markets, market power and antitrust, and the transportation of energy commodities. We examine the economic determinants of industry structure and evolution of competition among firms in these industries, investigate successful and unsuccessful strategies for entering new markets and competing in existing markets, and analyze the rationale for and effects of public policies in energy markets. Students play strategy games to learn about the oil and electricity industries. They simulate OPEC countries in the oil industry and for-profit firms in a restructured electricity market. The students solve for the collusive equilibria in the setting of a nonrenewable resource and develop their own strategies given that monitoring oil production is imperfect. They consider how to operate in electricity markets given that there are capacity constraints, inelastic demand, and lack of storage.