Long-Term Contracts and Competition on European Gas Markets - Has the Commission Struck the Right Balance?

A. Spanjer

Competition and Regulation in Network Industries, 2009, vol. 10, issue 2, 189-205

Abstract: This article examines whether the balance currently struck by the European Commission between long-term contracting and the introduction of competition will ensure a sustainable level of competition on European gas markets, i.e. competition that not impedes investments. It examines whether this balance - which can be derived from a recently closed antitrust case against Distrigas - takes proper account of the benefits of long-term contracting. The current balance recognizes the possibility of efficiencies related to long-term contracts. This article uses the transaction cost economics framework to assess this balance, because this science of contract explicitly focuses on contracts and their ex-post properties. It turns out that the Commission's balance is inadequate because the advantages of long-term contracting in terms of mitigating opportunistic regulatory behaviour are not acknowledged. One likely consequence is that the Commission will intervene, and force adaptations to long-term contracts, more often than efficient.

Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:sen:journl:v:10:i:2:y:2009:p:189-205

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