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Do LPG prices react to the entry of natural gas? Implications for competition policy

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  • González, Aldo
  • Lagos, Vicente

Abstract

In developing countries, the penetration of Liquefied Petroleum Gas (LPG) is still high, and hence the entry of Natural Gas (NG) networks coexists with the use of LPG by an important fraction of households. A relevant policy question is whether the degree of horizontal integration between NG and LPG providers has an influence on the level of retail prices. Using self-reported retail prices of the largest LPG provider in Chile during years 2013 and 2014, we estimate that the presence of a competing NG network generates an average decrease of LPG retail prices within the range [-4%,-2%]. This result suggests that the degree of horizontal integration between NG and LPG providers should matter, in particular for policy interventions such as merger control by competition authorities and the granting of concessions for deploying NG networks by sectoral regulators.

Suggested Citation

  • González, Aldo & Lagos, Vicente, 2021. "Do LPG prices react to the entry of natural gas? Implications for competition policy," Energy Policy, Elsevier, vol. 152(C).
    • Handle: RePEc:eee:enepol:v:152:y:2021:i:c:s0301421520305255
    DOI: 10.1016/j.enpol.2020.111806
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    More about this item

    Keywords

    Natural gas; Liquefied petroleum gas; Entry; Horizontal integration; Retail prices;
    All these keywords.

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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