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The impact of asymmetric regulation on surplus and welfare: the case of gas release programmes

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  • Cédric Clastres
  • Laurent David

Abstract

Gas release programmes, or capacities release, and market shares constraints are the two asymmetric regulations imposed on incumbents in energy markets. In this paper, we focus on gas release, its impact on welfare or consumer surplus and on the optimal level of released quantities set by regulators. We use a Cournot model with capacity constraints in order to study gas release and we put forward two conclusions. First, we compute the impact of these strategies on consumer surplus and welfare. We show that there is no impact on consumer surplus, but welfare can decrease as gas release can induce raising rival's costs (RRC) or 'self-sabotage' strategies. Then, we demonstrate that the regulator must set released quantities according to the information held on the incumbent's supplies to maximise welfare. Finally, we conclude that the regulator can avoid RRC or self-sabotage strategies by setting gas-released quantities. As proven from empirical studies, these quantities should not be too high so that a significant difference between capacities of both competitor and incumbent make it possible to avoid collusive behaviours. Copyright 2009 The Authors. Journal compilation 2009 Organization of the Petroleum Exporting Countries.

Suggested Citation

  • Cédric Clastres & Laurent David, 2009. "The impact of asymmetric regulation on surplus and welfare: the case of gas release programmes," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 33(2), pages 97-110, June.
  • Handle: RePEc:bla:opecrv:v:33:y:2009:i:2:p:97-110
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    References listed on IDEAS

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    Cited by:

    1. António Brandão & Joana Pinho & Joana Resende & Paula Sarmento & Isabel Soares, 2016. "Welfare effects of unbundling under different regulatory regimes in natural gas markets," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 15(2), pages 99-127, August.
    2. Chaton, Corinne & Gasmi, Farid & Guillerminet, Marie-Laure & Oviedo, Juan Daniel, 2010. "Gas Release and Transport Capacity Investment as Instruments to Foster Competition in Gas Markets," TSE Working Papers 10-203, Toulouse School of Economics (TSE).
    3. Chaton, Corinne & Gasmi, Farid & Guillerminet, Marie-Laure & Oviedo, Juan-Daniel, 2012. "Gas release and transport capacity investment as instruments to foster competition in gas markets," Energy Economics, Elsevier, vol. 34(5), pages 1251-1258.

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