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Energy Trade Access and Market Monopoly: Evidence from China’s Power Sector

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  • Zhao, Yu
  • Zhang, Ning

Abstract

We theoretically and empirically investigate the effect of energy trade access on the monopoly power of China’s power sector. We construct plant-level import and export tariff shocks, and calculate the market power markups through the joint estimation of the restricted cost function and the inverse supply relation. Exploiting the variations in plant-level tariffs, we find that a 1% cut in energy import tariffs leads to a decrease in market power markups by 10.54%. This effect is driven by a combination of a price drop in the product market and reduced marginal cost in the input market. However, the declines in marginal cost are small relative to the falls in prices, due to trade-induced increases in capital demand (and price) partially offsetting the savings in energy cost. By identifying additional potential channels, we validate the presence of the classical Ricardian effect and the Schumpeterian effect. Our results demonstrate that import tariff reductions result in substantial net trade gains.

Suggested Citation

  • Zhao, Yu & Zhang, Ning, 2025. "Energy Trade Access and Market Monopoly: Evidence from China’s Power Sector," World Development, Elsevier, vol. 185(C).
  • Handle: RePEc:eee:wdevel:v:185:y:2025:i:c:s0305750x24002675
    DOI: 10.1016/j.worlddev.2024.106797
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    Cited by:

    1. Huang, Xuhui & Zhou, Tao & Zhang, Ning, 2025. "How does the carbon market influence the marginal abatement cost? Evidence from China's coal-fired power plants," Applied Energy, Elsevier, vol. 378(PA).

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    More about this item

    Keywords

    Energy trade; Market monopoly; Tariff reduction; Power sector; China;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • F10 - International Economics - - Trade - - - General
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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