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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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Publisher Info
Paper provided by Utrecht School of Economics in its series Working Papers with number 09-15.

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Length: 49 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:use:tkiwps:0915

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Related research
Keywords: natural gas; capacity constraints; efficiency; market liberalization;

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Find related papers by JEL classification:
Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
L7 - Industrial Organization - - Industry Studies: Primary Products and Construction

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kjarstad, Jan & Johnsson, F., 2007. "Prospects of the European gas market," Energy Policy, Elsevier, vol. 35(2), pages 869-888, February. [Downloadable!] (restricted)
  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)
    Other versions:
  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)
  6. J. Peter Neary, 2007. "Cross-Border Mergers as Instruments of Comparative Advantage," Review of Economic Studies, Blackwell Publishing, vol. 74(4), pages 1229-1257, October. [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)
  8. Egging, Ruud & Gabriel, Steven A. & Holz, Franziska & Zhuang, Jifang, 2008. "A complementarity model for the European natural gas market," Energy Policy, Elsevier, vol. 36(7), pages 2385-2414, July. [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)
  12. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn. [Downloadable!] (restricted)
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