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Analysis of the World Market for Steam Coal Using a Complementarity Model

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  • Clemens Haftendorn
  • Franziska Holz

Abstract

With its resource availability and the prospect of climate friendly technology, coal continues to play an important role in the global energy sector. We develop a complementarity model of the international market for steam coal. We want to analyze the level of competition in this market which is strategic for the importers' security of energy supply. In a spatial equilibrium framework, we assume the steam coal exporters to maximize their profits by choosing the optimal quantity to sell to each importing country. We compare two possible scenarios: perfect competition and Cournot competition. The results, especially the price levels, indicate that the Cournot model is not realistic, suggesting that the producing countries do not exert market power. However, the trade flows and prices observed in reality suggests that there is some form of market power with price discrimination, possibly following a Bertrand model in a spatial setting.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.89056.de/dp818.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 818.

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Length: 18 p.
Date of creation: 2008
Date of revision:
Handle: RePEc:diw:diwwpp:dp818

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Keywords: Coal; energy; market structure; simulation model;

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References

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  1. Greenhut, John G & Greenhut, M L, 1975. "Spatial Price Discrimination, Competition and Locational Effects," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 42(168), pages 401-19, November.
  2. Hobbs, Benjamin F, 1986. "Mill Pricing versus Spatial Price Discrimination under Bertrand and Cournot Spatial Competition," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 35(2), pages 173-91, December.
  3. Kolstad, Charles D. & Abbey, David S., 1984. "The effect of market conduct on international steam coal trade," European Economic Review, Elsevier, Elsevier, vol. 24(1), pages 39-59.
  4. Robert S. Pindyck, 1979. "The Structure of World Energy Demand," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661772, December.
  5. Ruud Egging & Steven A. Gabriel & Franziska Holz & Jifang Zhuang, 2007. "A Complementarity Model for the European Natural Gas Market," Discussion Papers of DIW Berlin 732, DIW Berlin, German Institute for Economic Research.
  6. Linda Warell, 2006. "Market Integration in the International Coal Industry: A Cointegration Approach," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 1), pages 99-118.
  7. Finn Roar Aune & Rolf Golombek & Sverre Kittelsen & Knut Einar Rosendahl, 2004. "Liberalizing the energy markets of Western Europe - a computable equilibrium model approach," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 36(19), pages 2137-2149.
  8. Holz, Franziska & von Hirschhausen, Christian & Kemfert, Claudia, 2008. "A strategic model of European gas supply (GASMOD)," Energy Economics, Elsevier, Elsevier, vol. 30(3), pages 766-788, May.
  9. Yang, Chin W. & Hwang, Ming J. & Sohng, Soong N., 2002. "The Cournot competition in the spatial equilibrium model," Energy Economics, Elsevier, Elsevier, vol. 24(2), pages 139-154, March.
  10. Raymond Li & Roselyne Joyeux & Ronald D. Ripple, 2010. "International Steam Coal Market Integration," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 3), pages 181-202.
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Cited by:
  1. Trueby, Johannes & Paulus, Moritz, 2010. "Have Prices of Internationally Traded Steam Coal been Marginal Cost Based?," EWI Working Papers, Energiewirtschaftliches Institut an der Universitaet zu Koeln 2010-5, Energiewirtschaftliches Institut an der Universitaet zu Koeln.
  2. Egging, Ruud, 2013. "Benders Decomposition for multi-stage stochastic mixed complementarity problems – Applied to a global natural gas market model," European Journal of Operational Research, Elsevier, Elsevier, vol. 226(2), pages 341-353.
  3. Raymond Li, 2012. "Imperfect competition in the international coal industry – does it matter?," Economics Bulletin, AccessEcon, vol. 32(3), pages 1821-1830.
  4. BERUMEN, Sergio A. & LLAMAZARES-REDONDO, Francisco, 2014. "Economic Development and Viability Firms in European Mining Regions," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, Euro-American Association of Economic Development, vol. 14(1), pages 33-46.

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