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Oil Price Indexing Of Natural Gas Prices: An Economic Analysis

Author

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  • Bartholomae, Florian W.
  • Morasch, Karl

Abstract

Oil price indexing is a peculiar feature of the natural gas markets in Germany and other European countries. It is closely linked to the existence of local monopolies (at least de facto) and of the so called "take-or-pay" (TOP) contracts. After discussing the relation between these features and the motivations for oil price indexing, we formally analyze this strategy in a differentiated good oligoply with a monopolistic supplier of natural gas and competing oil distributors. Starting with a symmetric setting, we first point out how oil price indexing works as a collusive device. In a second step we account for the likely asymmetries between oil and gas distributors. We show that the result obtained under symmetry is not robust and we discuss how the impact of oil price indexing on prices, profits and welfare depends on the form and extent of the asymmetries.

Suggested Citation

  • Bartholomae, Florian W. & Morasch, Karl, 2006. "Oil Price Indexing Of Natural Gas Prices: An Economic Analysis," Working Papers in Economics 2006,4, Bundeswehr University Munich, Economic Research Group.
  • Handle: RePEc:zbw:ubwwpe:20064
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    Cited by:

    1. Sell, Friedrich L., 2007. "More about economic and non-economic determinants of (mutual) trust and trustworthiness," Working Papers in Economics 2007,2, Bundeswehr University Munich, Economic Research Group.

    More about this item

    Keywords

    Natural gas market; Oligopoly; oil price indexing; Take-or-pay contracts;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L59 - Industrial Organization - - Regulation and Industrial Policy - - - Other

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