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Market Liberalization in the European Natural Gas Market - The Importance of Capacity Constraints and Efficiency Differences

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Author Info
Steven Brakman ()
Charles van Marrewijk ()
Arjen van Witteloostuijn ()

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Abstract

In the European Union, energy markets are increasingly being liberalized. A case in point is the European natural gas industry. The general expectation is that more competition will lead to lower prices and higher volumes, and hence higher welfare. This paper indicates that this might not happen for at least two reasons. First, energy markets, including the market for natural gas, are characterized by imperfect competition and increasing costs to develop new energy sources. As a result, new entrants in the market are less efficient than incumbent firms. Second, energy markets, again including the market for natural gas, are associated with capacity constraints. Prices are determined in residual markets where the least efficient firms are active. This is likely to lead to price increases, rather than decreases.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2697.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2697

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Find related papers by JEL classification:
D40 - Microeconomics - - Market Structure and Pricing - - - General
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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  2. Lochner, Stefan & Bothe, David, 2009. "The development of natural gas supply costs to Europe, the United States and Japan in a globalizing gas market--Model-based analysis until 2030," Energy Policy, Elsevier, vol. 37(4), pages 1518-1528, April. [Downloadable!] (restricted)
  3. Jamasb, Tooraj & Pollitt, Michael & Triebs, Thomas, 2008. "Productivity and efficiency of US gas transmission companies: A European regulatory perspective," Energy Policy, Elsevier, vol. 36(9), pages 3398-3412, September. [Downloadable!] (restricted)
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  4. Wright, Philip, 2005. "Liberalisation and the security of gas supply in the UK," Energy Policy, Elsevier, vol. 33(17), pages 2272-2290, November. [Downloadable!] (restricted)
  5. van Witteloostuijn, Arjen & Brakman, Steven & van Marrewijk, Charles, 2007. "Welfare distribution effect of a price reduction in the Dutch gas transport market: A scenario analysis of regulatory policy, market form and rent allocation," Energy Policy, Elsevier, vol. 35(12), pages 6299-6308, December. [Downloadable!] (restricted)
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  7. Egging, Rudolf G. & Gabriel, Steven A., 2006. "Examining market power in the European natural gas market," Energy Policy, Elsevier, vol. 34(17), pages 2762-2778, November. [Downloadable!] (restricted)
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  9. Robinson, Terry, 2007. "Have European gas prices converged?," Energy Policy, Elsevier, vol. 35(4), pages 2347-2351, April. [Downloadable!] (restricted)
  10. Castro-Rodriguez, Fidel & Marín, Pedro L. & Siotis, Georges, 2009. "Capacity choices in liberalised electricity markets," Energy Policy, Elsevier, vol. 37(7), pages 2574-2581, July. [Downloadable!] (restricted)
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  11. Remme, Uwe & Blesl, Markus & Fahl, Ulrich, 2008. "Future European gas supply in the resource triangle of the Former Soviet Union, the Middle East and Northern Africa," Energy Policy, Elsevier, vol. 36(5), pages 1622-1641, May. [Downloadable!] (restricted)
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This page was last updated on 2009-11-3.

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