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Strategic Interdependence in European East-West Gas Trade: A Hierarchical Stackelberg Game Approach

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  • Waft Grais
  • Kangbin Zheng
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    Abstract

    The current and potential benefits of European East-West gas trade are enormous for all participants. The new and more complex structure of the natural gas transit system, as emerged with political and economic changes in Eastern Europe and the former Soviet Union, has created uncertainties about the interdependence and interactions among the participants. Using a Stackelberg game with three layers of players (suppliers, transiters and importers), this paper establishes a framework to analyze rational behaviors of the participants and reasonable ways to formulate transparent, flexible, and incentive-compatible contracts. This framework is also used to show how to modify the trade contract to accommodate changes in the gas trade environment. Improving predictability of the players' reactions to external changes can enhance the reliability of gas trade and allow its expansion to benefit all participants.

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    Bibliographic Info

    Article provided by International Association for Energy Economics in its journal The Energy Journal.

    Volume (Year): Volume17 (1996)
    Issue (Month): Number 3 ()
    Pages: 61-84

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    Handle: RePEc:aen:journl:1996v17-03-a05

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    Cited by:
    1. Breton, Michele & Zaccour, Georges, 2001. "Equilibria in an asymmetric duopoly facing a security constraint," Energy Economics, Elsevier, vol. 23(4), pages 457-475, July.
    2. Franz Hubert & Onur Cobanli, 2012. "Pipeline Power," FIW Working Paper series 093, FIW.
    3. Margarita M. Balmaceda, 2002. "EU Energy Policy and Future European Energy Markets: Consequences for the Central and East European States," MZES Working Papers 42, MZES.
    4. Hausken, Kjell & Plumper, Thomas, 2002. " Containing Contagious Financial Crises: The Political Economy of Joint Intervention into the Asian Crisis," Public Choice, Springer, vol. 111(3-4), pages 209-36, June.

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