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Reinforcing buyer power: Trade quotas and supply diversification in the EU natural gas market

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  • Gijsbert Zwart
  • S. Ikonnikova

Abstract

Can regulation help to increase domestic buyers’ countervailing power against foreign sellers? The question is paricularly relevant for the EU natural gas market. We use the Shapley value to describe the distribution of the trade surplus and market power in a bilateral oligopoly with concentrated domestic buyers and concentrated foreign sellers. With the EU natural gas market in mind, we find that buyers can benefit from bilateral but not from aggregate trade restrictions. Those who invest in supply diversification gain, with other buyers enjoying positive externalities; sellers lose profits and power. Thus we provide a rationale for the current EU support for importers’ investment plans.

Suggested Citation

  • Gijsbert Zwart & S. Ikonnikova, 2010. "Reinforcing buyer power: Trade quotas and supply diversification in the EU natural gas market," CPB Discussion Paper 147, CPB Netherlands Bureau for Economic Policy Analysis.
    • Handle: RePEc:cpb:discus:147
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    2. Edward Hunter Christie & Pavel K. Bev & Volodymyr Golovko, 2011. "Vulnerability and Bargaining Power in EU-Russia Gas Relations," FIW Research Reports series III-003, FIW.

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    JEL classification:

    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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