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An Exploration of a Strategic Competition Model for the European Union Natural Gas Market

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  • Zaifu Yang
  • Rong Zhang
  • Zongyi Zhang

Abstract

Following Jansen et al. (2012), we examine an unconventional Cournot model of the European Union natural gas market with three major suppliers Russian Gazprom, Norwegian Statoil, and Algerian Sonatrach. To reect Russia's other strategic consideration besides profit, we incorporate a relative market share into Gazprom's objective function. We prove that when Gazprom pursues the control of market share along with profit, it will be good news for consumers but bad news for its pure profit maximising rivals. We further show that by seeking a proper market share, Gazprom can achieve the same profit of a Stackelberg leader in a simultaneous move model as in the standard sequential move leader-follower model. Compared with Jansen et al.'s, our approach makes the analysis considerably simpler and more transparent.

Suggested Citation

  • Zaifu Yang & Rong Zhang & Zongyi Zhang, 2016. "An Exploration of a Strategic Competition Model for the European Union Natural Gas Market," Discussion Papers 16/06, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:16/06
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    Cited by:

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    2. Motalleb, Mahdi & Siano, Pierluigi & Ghorbani, Reza, 2019. "Networked Stackelberg Competition in a Demand Response Market," Applied Energy, Elsevier, vol. 239(C), pages 680-691.
    3. Sadek Boussena & Catherine Locatelli, 2017. "Gazprom and the complexity of the EU gas market: a strategy to define," Post-Print hal-01618494, HAL.
    4. Anis Hoayek & Hassan Hamie & Hans Auer, 2020. "Modeling the Price Stability and Predictability of Post Liberalized Gas Markets Using the Theory of Information," Energies, MDPI, vol. 13(11), pages 1-20, June.
    5. Locatelli, C., 2018. "La confrontation des systèmes institutionnels nationaux dans l'interdépendance : les échanges gaziers UE-Russie," Working Papers 2018-03, Grenoble Applied Economics Laboratory (GAEL).
    6. Yang, Zaifu & Zhang, Rong & Zhang, Zongyi, 2016. "An exploration of a strategic competition model for the European Union natural gas market," Energy Economics, Elsevier, vol. 57(C), pages 236-242.
    7. Mehdi Abbas & Catherine Locatelli, 2020. "National institutional systems’ hybridisation through interdependence. The case of EU-Russia gas relations," Post-Print hal-02272171, HAL.
    8. Anis Hoayek & Hassan Hamie & Hans Auer, 2020. "Modeling the Price Stability and Predictability of Post Liberalized Gas Markets Using the Theory of Information," Post-Print emse-03604655, HAL.
    9. Catherine Locatelli, 2018. "La confrontation des systèmes institutionnels nationaux dans l'interdépendance : les échanges gaziers UE-Russie," Working Papers hal-01715932, HAL.
    10. Zhao, Ruijia & Song, Yunting & Wang, Haoze & Xie, Xinlian, 2022. "Bi-objective optimisation model and its exact solution method of profit and market share of novel repair-and-support ships based on game theory," Omega, Elsevier, vol. 113(C).
    11. Cassetta, Ernesto & Nava, Consuelo R. & Zoia, Maria Grazia, 2022. "A three-step procedure to investigate the convergence of electricity and natural gas prices in the European Union," Energy Economics, Elsevier, vol. 105(C).
    12. Grimm, Veronika & Grübel, Julia & Schewe, Lars & Schmidt, Martin & Zöttl, Gregor, 2019. "Nonconvex equilibrium models for gas market analysis: Failure of standard techniques and alternative modeling approaches," European Journal of Operational Research, Elsevier, vol. 273(3), pages 1097-1108.
    13. Veronika Grimm & Lars Schewe & Martin Schmidt & Gregor Zöttl, 2019. "A multilevel model of the European entry-exit gas market," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 89(2), pages 223-255, April.
    14. Boussena, S. & Locatelli, C., 2017. "Gazprom and the complexity of the EU gas market: A strategy to define," Working Papers 2017-09, Grenoble Applied Economics Laboratory (GAEL).
    15. Jung, Jihyeok & Moon, Saedaseul & Yeo, Sangmin & Lee, Deok-Joo, 2023. "How would the carbon market affect the choice of input factors for production? A duopolistic model," Energy, Elsevier, vol. 282(C).
    16. Locatelli, C. & Abbas, M., 2019. "Interdépendance complexe et hybridation des modèles institutionnels nationaux : le cas des relations énergétique UE-Russie," Working Papers 2019-02, Grenoble Applied Economics Laboratory (GAEL).
    17. Penkovskii, Andrey & Stennikov, Valery & Mednikova, Ekaterina & Postnikov, Ivan, 2018. "Search for a market equilibrium of Cournot-Nash in the competitive heat market," Energy, Elsevier, vol. 161(C), pages 193-201.
    18. Böttger, T. & Grimm, V. & Kleinert, T. & Schmidt, M., 2022. "The cost of decoupling trade and transport in the European entry-exit gas market with linear physics modeling," European Journal of Operational Research, Elsevier, vol. 297(3), pages 1095-1111.
    19. Catherine Locatelli & Mehdi Abbas, 2019. "Interdépendance complexe et hybridation des modèles institutionnels nationaux : le cas des relations énergétiques UE-Russie," Working Papers hal-02100098, HAL.

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    More about this item

    Keywords

    Natural gas market; Cournot model; Stackelberg leader's advantage; Non-profit incentive; Relative market share; European Union;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • 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
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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