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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

    () (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - UPMF - Université Pierre Mendès France - Grenoble 2 - CNRS - Centre National de la Recherche Scientifique, G2ELab - Laboratoire de Génie Electrique de Grenoble - UJF - Université Joseph Fourier - Grenoble 1 - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - Institut Polytechnique de Grenoble - Grenoble Institute of Technology - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes)

  • Laurent David

    () (Research Division - Gaz De France)

Abstract

Some European regulators have decided to force competition in their nationalmarkets. They have decided to go beyond the second directive and apply asymmetric regulation. Gas release programs and market shares constraints are the two asymmetric decisions imposed to incumbents. When a regulator imposes a gas release program to an incumbent, this operator is compelled to release quantities of its long term contracts to its competitor. In this paper, we will focus on gas release and its impact on welfare, consumer surplus and on the level of released quantities set by regulators. The aim of a gas release program is to give access to natural gas to competitors. They become actives on the market and are in competition with the incumbent. These programs are time limited. They only help competitors in expecting the development of hubs or new investments in importation infrastructures. If competitors want to stay active after the program, they may find others supply sources to increase security of supply. The gas release can induce Raising Rival's Costs or “Self-Sabotage” strategies. We use a Cournot model with capacity constraints to answer two questions. First, we will study the impact of these strategies on consumer surplus and welfare. We will show that there are no impact on consumer surplus but the welfare decreases. The gas release program introduces a transfer of profit between competitor and incumbent, reduces welfare because of the increase in costs of supply, but has no impact on total consumed quantities. Then, we will suppose that the regulator is setting released quantities maximising welfare. Gas release price is often based on costs plus a bid or a fixed premium. Quantities are set with a less obvious process. We will demonstrate that the regulator must set released quantities : - that would not be so high if incumbent's supplies are small to avoid Self- Sabotage or RRC strategies; - as a function of incumbent's supplies if they are in intermediate values to avoid strategies seen above and to optimise quantities sold on the market; - at a sufficient level to let the two operators playing their Cournot best reply function. Finally, we will conclude that the regulator can avoid RRC or Self-Sabotage strategies in maximising the welfare when it decides gas released quantities. Gathering from empirical studies, these quantities should not be so high in order to let a significant difference between the capacities of both competitor and incumbent to avoid collusive behaviours.

Suggested Citation

  • Cédric Clastres & Laurent David, 2009. "The impact of asymmetric regulation on surplus and welfare : the case of gas release programmes," Post-Print halshs-00442213, HAL.
  • Handle: RePEc:hal:journl:halshs-00442213
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00442213
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    Cited by:

    1. 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.
    2. 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.
    3. 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).

    More about this item

    Keywords

    REGULATION; MARCHE INTERIEUR; GAZ NATUREL; MARCHE CONCURRENTIEL; GAS RELEASE;

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