for overinvestment in efficient technologies, in the case of strategic interaction of 4 firms.^{33 }Up to a level of production cost of 25€/MWh firms invest more than in the first best scenario.^{34 }As a main result we thus conclude that predicted investment for the German market with four strategic firms in base–load technologies (producing at marginal cost below 25 €/MWh, such as nuclear and lignite plants) exceeds first best investment levels. Strategic under–investment takes place exclusively in middle and peak load technologies (such as gas, or oil-fired plants). Finally from the predicted capacity levels we now compute the price distribution over all 8760 hours of the year as illustrated in figure 8. Figure 8

350

300

250

## Prices (E/MWh)

200

150

## P

* M

P

* EQ

(n=2)

100

## P

* EQ

(n=4)

## P

## Real

50

* ^{P}FB

0

0

1000

2000

3000

4000 5000 Hour

6000

7000

8000

9000

F i g u r e 8 : D i s t r i b u t i o n o f m a r k e t p r i c e s f o r p e r f e c t c o m p e t i t i o n ( P F B ) , m o n o p o l y ( P M

), and

t h e o l i g o p o l y c a s e s o f n = 2 a n d n = 4 fi r m s ( P 2 E Q

, P 4 E Q

).

provides the observed price distribution (P_{Real}), as well as the predicted price distributions for the benchmark cases of perfect competition (PF B) and Monopoly (PM ) and also for the

^{33}The German market consists essentially of four large players. Two of them (RWE and E.on) have a market share of 26 % each, while the two smaller ones (ENBW and Vattenfall) together cover 30 % of the

market each. Compare, e.g., Monopolkommission (2007).

^{34}Remarkably, this is not the case for a hypothetic duopoly of firms, nicely illustrating our theoretical result of lemma 6.

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