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

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Author Info
Clemens Haftendorn
Franziska Holz

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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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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
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Handle: RePEc:diw:diwwpp:dp818

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

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Find related papers by JEL classification:
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
L72 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Other Nonrenewable Resources
C69 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Other

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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, vol. 42(168), pages 401-19, November. [Downloadable!] (restricted)
  2. Finn Roar Aune & Rolf Golombek & Sverre A. C. Kittelsen & Knut Einar Rosendahl, 2004. "Liberalizing the energy markets of Western Europe - a computable equilibrium model approach," Applied Economics, Taylor and Francis Journals, vol. 36(19), pages 2137-2149, September. [Downloadable!] (restricted)
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  3. Franziska Holz & Christian von Hirschhausen & Claudia Kemfert, 2006. "A Strategic Model of European Gas Supply (GASMOD)," Discussion Papers of DIW Berlin 551, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
  4. Robert S. Pindyck, 1979. "The Structure of World Energy Demand," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661772.
  5. Linda Warell, 2006. "Market Integration in the International Coal Industry: A Cointegration Approach," The Energy Journal, International Association for Energy Economics, vol. 27(1), pages 99-118.
  6. Hobbs, Benjamin F, 1986. "Mill Pricing versus Spatial Price Discrimination under Bertrand and Cournot Spatial Competition," Journal of Industrial Economics, Blackwell Publishing, vol. 35(2), pages 173-91, December. [Downloadable!] (restricted)
  7. Kolstad, Charles D. & Abbey, David S., 1984. "The effect of market conduct on international steam coal trade," European Economic Review, Elsevier, vol. 24(1), pages 39-59. [Downloadable!] (restricted)
  8. Yang, Chin W. & Hwang, Ming J. & Sohng, Soong N., 2002. "The Cournot competition in the spatial equilibrium model," Energy Economics, Elsevier, vol. 24(2), pages 139-154, March. [Downloadable!] (restricted)
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This page was last updated on 2009-11-28.

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