A modified Cournot model of the natural gas market in the European Union: Mixed-motives delegation in a politicized environment

Mathijs Jansen, Arie van Lier, Arjen van Witteloostuijn and Tim Boon von Ochssée

Energy Policy, 2012, vol. 41, issue C, 280-285

Abstract: With Gazprom gaining prominence as the major supplier of natural gas in the European Union, the European gas market becomes more politicized. We assume that Gazprom's interest as a state monopolist is not only to maximize profit, but also to seek market power, presumably because this contributes to the geopolitical power of Russia at large. We introduce a modeling tool, so-called strategic delegation games, to analyze the implications of Gazprom's operation in the EU. By way of illustration, we model the case where Gazprom competes against two profit-maximizing rivals: Algerian Sonatrach and Norwegian Statoil. We prove that if Gazprom serves any of a comprehensive type of nonprofit objectives, the outcome is beneficial for the EU's consumers, as Gazprom's behavior shifts volumes up and brings prices down.

Keywords: Natural gas market; Cournot duopoly; Nonprofit incentives (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:41:y:2012:i:c:p:280-285

DOI: 10.1016/j.enpol.2011.10.047

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