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

Maroeska G. Boots, Fieke A.M. Rijkers and Benjamin F. Hobbs

Year: 2004
Volume: Volume 25
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol25-No3-5
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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.



The More Cooperation, The More Competition? A Cournot Analysis of the Benefits of Electric Market Coupling

Benjamin F. Hobbs, Fieke A.M. Rijkers, Maroeska G. Boots

Year: 2005
Volume: Volume 26
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol26-No4-5
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Abstract:
If barriers between two power markets are eliminated, what might happen to competition and prices? And who benefits? In the case of the Belgian and Dutch markets, market coupling would permit more efficient use of transmission by improving access to the Belgian market, by counting only net flows against interface limits, and by eliminating mismatches in timing of interface auctions and energy spot markets. We estimate the benefits associated with the first two of these impacts using a transmission-constrained Cournot model. Social surplus improvements on the order of 108 �/year are projected, unless market coupling encourages the largest producer in the region to switch from price-taking in Belgium to a Cournot strategy due to a perceived diminished threat of regulatory intervention. Whether Dutch consumers would benefit also depends on that company�s behavior. The results illustrate how large-scale oligopoly models can be used to assess changes in market designs.





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