Take or Pay Contracts and Market Segmentation
AbstractThis paper examines competition in the liberalized natural gas market. Each .firm has zero marginal cost core capacity, due to long term contracts with take or pay obligations, and additional capacity at higher marginal costs. The market is decentralized and the firms decide which customers to serve, competing then in prices. In equilibrium each .firm approaches a different segment of the market and sets the monopoly price, i.e. market segmentation. Antitrust ceilings do not prevent such an outcome while the separation of wholesale and retail activities and the creation of a wholesale market induces generalized competition and low margins in the retail segment.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 5861.
Date of creation: 2007
Date of revision:
Entry; Segmentation; Decentralized market;
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
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-24 (All new papers)
- NEP-COM-2007-11-24 (Industrial Competition)
- NEP-ENE-2007-11-24 (Energy Economics)
- NEP-MIC-2007-11-24 (Microeconomics)
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