Market liberalization in the European natural gas market : the importance of capacity constraints and efficiency differences
AbstractIn 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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Bibliographic InfoPaper provided by Utrecht School of Economics in its series Working Papers with number 09-15.
Length: 49 pages
Date of creation: 2009
Date of revision:
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Other versions of this item:
- Steven Brakman & Charles van Marrewijk & Arjen van Witteloostuijn, 2009. "Market Liberalization in the European Natural Gas Market - The Importance of Capacity Constraints and Efficiency Differences," CESifo Working Paper Series 2697, CESifo Group Munich.
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
- L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-11 (All new papers)
- NEP-COM-2009-07-11 (Industrial Competition)
- NEP-EEC-2009-07-11 (European Economics)
- NEP-ENE-2009-07-11 (Energy Economics)
- NEP-MIC-2009-07-11 (Microeconomics)
- NEP-REG-2009-07-11 (Regulation)
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