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Gas distribution networks post unbundling: Exploring compactness beyond scale and density

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  • Cavaliere, Alberto
  • Crea, Giovanni
  • Mosconi, Rocco

Abstract

Using a unique database that accounts for the unbundling between natural gas distribution and retail supply in Italy, we have analyzed the cost drivers of distribution networks. We have provided new empirical evidence regarding the existence and extent of scale and density economies. In addition, we have introduced the innovative notion of compactness and an operational measure of it. By applying econometric panel data techniques, we have estimated the MES (Minimum Efficient Scale) for Distribution System Operators (DSOs) and verified that average cost is a strongly decreasing function of compactness for small and medium-sized DSOs. Compactness effects, however, are negligible for the largest firms. Our analysis confirms the existence of strong density economies, but we have found that congestion costs significantly reduce density benefits in highly urbanized areas. Our results suggest that DSOs with exogenous cost advantages do not fully exploit them to minimize distribution costs, implying higher tariffs for service users and economic rents for firms' stakeholders. Finally, we have discussed policy and regulatory implications regarding the heterogeneous structure of the distribution industry across Europe.

Suggested Citation

  • Cavaliere, Alberto & Crea, Giovanni & Mosconi, Rocco, 2026. "Gas distribution networks post unbundling: Exploring compactness beyond scale and density," Energy Economics, Elsevier, vol. 160(C).
    • Handle: RePEc:eee:eneeco:v:160:y:2026:i:c:s014098832600366x
    DOI: 10.1016/j.eneco.2026.109487
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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities

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