Abstract
The market liberalization of the European electricity sector aimed for a more efficient allocation of resources and lower overall lower wholesale price levels. This paper uses a two-step game developed by Kreps and Scheinkman [1983] to assess if the German integrated network- energysupply companies may have succeeded to use their market position in order to extract economic rent. I use an IV regression model to show that this may indeed have been the case. Protected by high barriers to enter, the network energy companies seemed to have managed strategic retirement of assets in such a way, that they may have been able to extract economic rent of approximately 22 billion Euros in gross margin annually.