IAEE Members and subscribers to The Energy Journal: Please log in to access the full text article or receive discounted pricing for this article.

Trading in the Downstream European Gas Market: A Successive Oligopoly Approach

Abstract:
A model of successive oligopoly is applied to the European natural gas market. The model has a two-level structure, in which Cournot producers are also Stackelberg leaders with respect to traders, who may be Cournot oligopolists or price takers. Several conclusions emerge. First, successive oligopoly ("double marginalization") yields higher prices and lower consumer welfare than if oligopoly exists only on one level. Second, due to the high concentration of traders, prices are distorted more by market power in trading than in production. Third, trader profits depend on whether producers can price discriminate among consuming sectors; if so, producers collect a greater share of the profits. Finally, when traders increase in number, prices approach competitive levels. Thus, it is important to prevent concentration in the downstream gas market. If oligopolistic trading cannot be prevented, vertical integration should not be discouraged, especially if it would increase the number of traders.

Purchase ( $25 )

Energy Specializations: Natural Gas – Markets and Prices; Natural Gas – Policy and Regulation

JEL Codes: Q48: Energy: Government Policy, Q40: Energy: General, L11: Production, Pricing, and Market Structure; Size Distribution of Firms, D42: Market Structure, Pricing, and Design: Monopoly, L13: Oligopoly and Other Imperfect Markets, D43: Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection

Keywords: Natural gas, Europe, liberalization, imperfect competition, oligopoly, non linear, complementarity models

DOI: 10.5547/ISSN0195-6574-EJ-Vol25-No3-5

Published in Volume 25, Number 3 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

© 2023 International Association for Energy Economics | Privacy Policy | Return Policy