Modeling Post-Liberalized European Gas Market Concentration—A Game Theory Perspective

Hassan Hamie, Anis Hoayek and Hans Auer
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Hassan Hamie: Energy Economics Group (EEG), Institute of Energy Systems and Electrical Drives, Technische Universität Wien, Gusshausstrasse 25/370-03, A-1040 Wien, Austria
Anis Hoayek: Mines Saint-Etienne, Université Clermont Auvergne, CNRS, UMR 6158 LIMOS, Institut Henri Fayol, F-42023 Saint-Etienne, France
Hans Auer: Energy Economics Group (EEG), Institute of Energy Systems and Electrical Drives, Technische Universität Wien, Gusshausstrasse 25/370-03, A-1040 Wien, Austria

Forecasting, 2020, vol. 3, issue 1, 1-16

Abstract: The question of whether the liberalization of the gas industry has led to less concentrated markets has attracted much interest among the scientific community. Classical mathematical regression tools, statistical tests, and optimization equilibrium problems, more precisely non-linear complementarity problems, were used to model European gas markets and their effect on prices. In this research, the parametric and nonparametric game theory methods are employed to study the effect of the market concentration on gas prices. The parametric method takes into account the classical Cournot equilibrium test, with assumptions on cost and demand functions. However, the non-parametric method does not make any prior assumptions, a factor that allows greater freedom in modeling. The results of the parametric method demonstrate that the gas suppliers’ behavior in Austria and The Netherlands gas markets follows the Nash–Cournot equilibrium, where companies act rationally to maximize their payoffs. The non-parametric approach validates the fact that suppliers in both markets follow the same behavior even though one market is more liquid than the other. Interestingly, our findings also suggest that some of the gas suppliers maximize their ‘utility function’ not by only relying on profit, but also on some type of non-profit objective, and possibly collusive behavior.

Keywords: game theory; market concentration; gas markets; Nash–Cournot model; gas price forecasting (search for similar items in EconPapers)
JEL-codes: A1 B4 C0 C1 C2 C3 C4 C5 C8 M0 Q2 Q3 Q4 (search for similar items in EconPapers)
Date: 2020
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