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Market liberalization in the European natural gas market : the importance of capacity constraints and efficiency differences

  • Steven Brakman
  • J.G.M. van Marrewijk
  • A. van Witteloostuijn

In the European Union, energy markets are increasingly being liberalized. A case in point is the European natural gas industry. The general expectation is that more competition will lead to lower prices and higher volumes, and hence higher welfare. This paper indicates that this might not happen for at least two reasons. First, energy markets, including the market for natural gas, are characterized by imperfect competition and increasing costs to develop new energy sources. As a result, new entrants in the market are less efficient than incumbent firms. Second, energy markets, again including the market for natural gas, are associated with capacity constraints. Prices are determined in residual markets where the least efficient firms are active. This is likely to lead to price increases, rather than decreases.

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File URL: http://dspace.library.uu.nl/bitstream/handle/1874/36706/09-15.pdf
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Paper provided by Utrecht School of Economics in its series Working Papers with number 09-15.

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Length: 49 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:use:tkiwps:0915
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  1. Neary, J Peter, 2004. "Cross-Border Mergers as Instruments of Comparative Advantage," CEPR Discussion Papers 4325, C.E.P.R. Discussion Papers.
  2. repec:ner:tilbur:urn:nbn:nl:ui:12-5373403 is not listed on IDEAS
  3. van Witteloostuijn, Arjen & Brakman, Steven & van Marrewijk, Charles, 2007. "Welfare distribution effect of a price reduction in the Dutch gas transport market: A scenario analysis of regulatory policy, market form and rent allocation," Energy Policy, Elsevier, vol. 35(12), pages 6299-6308, December.
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  8. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
  9. Robinson, Terry, 2007. "Have European gas prices converged?," Energy Policy, Elsevier, vol. 35(4), pages 2347-2351, April.
  10. Ellis, Andrew & Bowitz, Einar & Roland, Kjell, 2000. "Structural change in Europe's gas markets: three scenarios for the development of the European gas market to 2020," Energy Policy, Elsevier, vol. 28(5), pages 297-309, May.
  11. Egging, Rudolf G. & Gabriel, Steven A., 2006. "Examining market power in the European natural gas market," Energy Policy, Elsevier, vol. 34(17), pages 2762-2778, November.
  12. Remme, Uwe & Blesl, Markus & Fahl, Ulrich, 2008. "Future European gas supply in the resource triangle of the Former Soviet Union, the Middle East and Northern Africa," Energy Policy, Elsevier, vol. 36(5), pages 1622-1641, May.
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  14. Wright, Philip, 2005. "Liberalisation and the security of gas supply in the UK," Energy Policy, Elsevier, vol. 33(17), pages 2272-2290, November.
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