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Can Liberalization Affect the Price of Gas Imports? A Theoretical Analysis of the EU Case

Author

Listed:
  • Alberto Cavaliere

    (Department of Economics and Business, University of Pavia)

  • Stefano De Michelis

    (Department of Economics and Business, University of Pavia)

Abstract

Common wisdom about the effects of gas market liberalization in the EU claims that the fragmentation of gas supply in the downstream market can raise the price of gas imports, as the bargaining power of European firms in the upstream market would be weakened. We consider such a claim from the point of view of economic theory, by analysing the effects of downstream competition on the upstream price of gas. Though our analysis is limited by the assumption of a single gas producer upstream, we can show that the price of gas imports either is not affected by oligopolistic competition in the downstream market or it is even reduced in case of free entry and fierce competiton. In this last case the incumbent is damaged by economic losses, that can explain his attempt to prevent competition by introducing vertical restraints in the supply chain. Furthermore we show that, in this last case, the introduction of pro-competive constraits on the market share of the incumbent may damage consumers, as it raises prices in the retail market.

Suggested Citation

  • Alberto Cavaliere & Stefano De Michelis, 2012. "Can Liberalization Affect the Price of Gas Imports? A Theoretical Analysis of the EU Case," Quaderni di Dipartimento 179, University of Pavia, Department of Economics and Quantitative Methods.
    • Handle: RePEc:pav:wpaper:179
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    File URL: http://dem-web.unipv.it/web/docs/dipeco/quad/ps/RePEc/pav/wpaper/q179.pdf
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    Cited by:

    1. Roberto Cardinale, 2023. "Liberalization and the volatility of gas prices: Exploring their relation in times of abundance and scarcity," Competition and Regulation in Network Industries, , vol. 24(2-3), pages 72-96, June.

    More about this item

    Keywords

    liberalization; international gas markets; market structure;
    All these keywords.

    JEL classification:

    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities

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