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Title:
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Trading in the downstream European gas market. A successive oligopoly approach
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Author(s):
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Published by:
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Publication date:
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ECN
Policy Studies
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1-1-2005
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ECN report number:
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Document type:
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ECN-RX--05-063
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Article (scientific)
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Number of pages:
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0
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Published in: The Energy Journal (IAEE), , 2005, Vol.25, p.73-102.
Abstract:
A model of successive oligopoly is applied to the European natural gasmarket. 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.
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