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Do Prices for Petroleum Products Converge in a Unified Europe with Non-Harmonized Tax Rates?

Axel Dreher and Tim Krieger

Year: 2008
Volume: Volume 29
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No1-4
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Abstract:
The paper presents panel unit root tests for price convergence of different petroleum products over the last decade. We distinguish consumer and producer price convergence and test for the absolute versus relative version of the law of one price. Comparing the speed of convergence as well as its development over time indicates that price arbitrage in the common EU markets is not sufficiently strong to level the price differentials, mainly caused by different excise taxation. We show that taxation alone leads to market segmentation and that discretionary national tax policy by EU member states is not (yet) threatened by the observable level of cross-border shopping.



Market Power and Spatial Arbitrage between Interconnected Gas Hubs

Olivier Massol andAlbert Banal-Estañol

Year: 2018
Volume: Volume 39
Number: Special Issue 2
DOI: 10.5547/01956574.39.SI2.omas
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Abstract:
This paper examines the performance of the spatial arbitrages carried out between two regional markets for wholesale natural gas linked by a pipeline system. We develop a new empirical methodology to (i) detect if these markets are integrated, i.e., if all the spatial arbitrage opportunities between the two markets are being exploited, and (ii) decompose the observed spatial price differences into factors such as transportation costs, transportation bottlenecks, and the oligopolistic behavior of the arbitrageurs. Our framework incorporates a new test for the presence of market power and it is thus able to distinguish between physical and strategic behavior constraints on marginal cost pricing. We use the case of the "Interconnector" pipeline linking Belgium and the UK as an application. Our empirical findings show that all the arbitrage opportunities between the two zones are being exploited but confirm the presence of market power.





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