IDEAS home Printed from https://ideas.repec.org/p/cam/camdae/1340.html

Price Discrimination and Limits to Arbitrage in Global LNG Markets

Author

Listed:
  • Robert Ritz

Abstract

Gas prices around the world va’y widely despite being connected by international trade of LNG Some industry observers argue hat major exporters g , Qatar) have acted irrationally by failing to engage in price arbitrage. This is also difficult to reconcile with a perfectly competitive model in which price differences exist solely because of transport costs we show that a model with market power can rationalize observed price differentials and trade flows. We highlight how different features of the LNG market limit the ability and/or incentive of other players to arbitrage, and discuss the potential impact of US LNG exports.

Suggested Citation

  • Robert Ritz, 2013. "Price Discrimination and Limits to Arbitrage in Global LNG Markets," Cambridge Working Papers in Economics 1340, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:1340
    as

    Download full text from publisher

    File URL: https://www.econ.cam.ac.uk/sites/default/files/publication-cwpe-pdfs/cwpe1340.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Franz Hubert & Svetlana Ikonnikova, 2011. "Investment Options And Bargaining Power: The Eurasian Supply Chain For Natural Gas," Journal of Industrial Economics, Wiley Blackwell, vol. 59(1), pages 85-116, March.
    2. Kenneth S. Corts, 1998. "Third-Degree Price Discrimination in Oligopoly: All-Out Competition and Strategic Commitment," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 306-323, Summer.
    3. Corinne Chaton & Laure Durand‐Viel, 2013. "Real Asset Valuation under Imperfect Competition: Can We Forget About Market Fundamentals?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(1), pages 125-139, March.
    4. Ruud Egging & Franziska Holzf & Christian von Hirschhausen & Steven A. Gabriel, 2009. "Representing GASPEC with the World Gas Model," The Energy Journal, , vol. 30(1_suppl), pages 97-118, June.
    5. repec:aen:journl:2003v24-02-a01 is not listed on IDEAS
    6. repec:aen:journl:hh-se-a08 is not listed on IDEAS
    7. Holz, Franziska & von Hirschhausen, Christian & Kemfert, Claudia, 2008. "A strategic model of European gas supply (GASMOD)," Energy Economics, Elsevier, vol. 30(3), pages 766-788, May.
    8. Severin Borenstein & James Bushnell & Christopher R. Knittel & Catherine Wolfram, 2008. "Inefficiencies And Market Power In Financial Arbitrage: A Study Of California'S Electricity Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 56(2), pages 347-378, June.
    9. Salant, Stephen W, 1976. "Exhaustible Resources and Industrial Structure: A Nash-Cournot Approach to the World Oil Market," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 1079-1093, October.
    10. repec:aen:journl:hh-se-a12 is not listed on IDEAS
    11. repec:aen:journl:2007v28-01-a01 is not listed on IDEAS
    12. Pedro A. Almoguera & Christopher C. Douglas & Ana María Herrera, 2011. "Testing for the cartel in OPEC: non-cooperative collusion or just non-cooperative?," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 27(1), pages 144-168, Spring.
    13. Dirk Bergemann & Benjamin Brooks & Stephen Morris, 2015. "The Limits of Price Discrimination," American Economic Review, American Economic Association, vol. 105(3), pages 921-957, March.
    14. Siliverstovs, Boriss & L'Hegaret, Guillaume & Neumann, Anne & von Hirschhausen, Christian, 2005. "International market integration for natural gas? A cointegration analysis of prices in Europe, North America and Japan," Energy Economics, Elsevier, vol. 27(4), pages 603-615, July.
    15. Doane, Michael J & Spulber, Daniel F, 1994. "Open Access and the Evolution of the U.S. Spot Market for Natural Gas," Journal of Law and Economics, University of Chicago Press, vol. 37(2), pages 477-517, October.
    16. Simon Cowan, 2012. "Third-Degree Price Discrimination and Consumer Surplus," Journal of Industrial Economics, Wiley Blackwell, vol. 60(2), pages 333-345, June.
    17. Anton Nakov & Galo Nuño, 2013. "Saudi Arabia and the Oil Market," Economic Journal, Royal Economic Society, vol. 123(12), pages 1333-1362, December.
    18. Layson, Stephen K, 1994. "Market Opening under Third-Degree Price Discrimination," Journal of Industrial Economics, Wiley Blackwell, vol. 42(3), pages 335-340, September.
    19. Shleifer, Andrei & Vishny, Robert W, 1997. "The Limits of Arbitrage," Journal of Finance, American Finance Association, vol. 52(1), pages 35-55, March.
    20. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 34, pages 2221-2299, Elsevier.
    21. Iñaki Aguirre & Simon Cowan & John Vickers, 2010. "Monopoly Price Discrimination and Demand Curvature," American Economic Review, American Economic Association, vol. 100(4), pages 1601-1615, September.
    22. Anne Neumann, 2009. "Linking Natural Gas Markets - Is LNG Doing its Job?," The Energy Journal, , vol. 30(1_suppl), pages 187-200, June.
    23. repec:aen:journl:hh-se-a07 is not listed on IDEAS
    24. Acharya, Viral V. & Lochstoer, Lars A. & Ramadorai, Tarun, 2013. "Limits to arbitrage and hedging: Evidence from commodity markets," Journal of Financial Economics, Elsevier, vol. 109(2), pages 441-465.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xiaoyi Mu & Haichun Ye, 2018. "Towards an Integrated Spot LNG Market: An Interim Assessment," The Energy Journal, , vol. 39(1), pages 211-234, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ritz, Robert A., 2014. "Price discrimination and limits to arbitrage: An analysis of global LNG markets," Energy Economics, Elsevier, vol. 45(C), pages 324-332.
    2. Aguirre Pérez, Iñaki, 2011. "Multimarket Competition and Welfare Effects of Price discrimination," IKERLANAK info:eu-repo/grantAgreeme, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    3. Andrew Rhodes & Jidong Zhou, 2024. "Personalized Pricing and Competition," American Economic Review, American Economic Association, vol. 114(7), pages 2141-2170, July.
    4. Takanori ADACHI, 2022. "Recent Advances in the Theory of Third-Degree Price Discrimination: A Brief Survey," Discussion papers e-22-006, Graduate School of Economics , Kyoto University.
    5. Dirk Bergemann & Benjamin Brooks & Stephen Morris, 2015. "The Limits of Price Discrimination," American Economic Review, American Economic Association, vol. 105(3), pages 921-957, March.
    6. Morten Hviid & Greg Shaffer, 2012. "Optimal low-price guarantees with anchoring," Quantitative Marketing and Economics (QME), Springer, vol. 10(4), pages 393-417, December.
    7. Jean-Pierre Dubé & Sanjog Misra, 2017. "Personalized Pricing and Consumer Welfare," NBER Working Papers 23775, National Bureau of Economic Research, Inc.
    8. Markus Dertwinkel‐Kalt & Christian Wey, 2023. "Third‐Degree Price Discrimination in Oligopoly when Markets are Covered," Journal of Industrial Economics, Wiley Blackwell, vol. 71(2), pages 464-490, June.
    9. Aguirre, Iñaki & Yenipazarli, Arda, 2022. "A Rationale for the “Meeting Competition Defense” when Competitive Pressure Varies Across Markets," MPRA Paper 113746, University Library of Munich, Germany.
    10. Alexandrov, Alexei & Deb, Joyee, 2012. "Price discrimination and investment incentives," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 615-623.
    11. Elias Deutscher, 2022. "Brand bidding restraints revisited – What is the appropriate economic and legal framework for the antitrust analysis of vertical online search advertising restraints?," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2021-09, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    12. Robert A. Ritz, 2015. "Strategic Investment and International Spillovers in Natural Gas Markets," Working Papers EPRG 1505, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    13. Aguirre Iñaki, 2016. "On the Economics of the “Meeting Competition Defense” Under the Robinson–Patman Act," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(3), pages 1213-1238, September.
    14. Takanori Adachi & Noriaki Matsushima, 2014. "The Welfare Effects Of Third-Degree Price Discrimination In A Differentiated Oligopoly," Economic Inquiry, Western Economic Association International, vol. 52(3), pages 1231-1244, July.
    15. Aguirre, Iñaki, 2019. "Oligopoly price discrimination, competitive pressure and total output," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy, vol. 13, pages 1-16.
    16. Sun, Xiang & Xu, Jin & Zhou, Junjie, 2023. "Effort discrimination and curvature of contest technology in conflict networks," Games and Economic Behavior, Elsevier, vol. 142(C), pages 978-991.
    17. Jong-Hee Hahn & Chan KIm, 2018. "Input price discrimination with differentiated final products," Working papers 2018rwp-118, Yonsei University, Yonsei Economics Research Institute.
    18. Even Comfort Hvinden, 2019. "OPEC's crude game," Working Papers No 10/2019, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    19. Ki-Eun Rhee, 2025. "Competitive Price Discrimination in Asymmetric Oligopoly," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 67(1), pages 83-110, June.
    20. Nathan S Balke & Xin Jin & Mine Yücel, 2024. "The Shale Revolution and the Dynamics of the Oil Market," The Economic Journal, Royal Economic Society, vol. 134(662), pages 2252-2289.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cam:camdae:1340. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jake Dyer (email available below). General contact details of provider: https://www.econ.cam.ac.uk/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.