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Understanding the Lack of Competition in Natural Gas Markets: The Impact of Storage Ownership and Upstream Competition

Michal Mravec

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: Motivated by the failure of competition to emerge after the natural gas market in the Czech Republic was liberalized, I explore the impact of natural gas storage ownership and upstream competition on the downstream level. I extend standard Cournot models to understand current and likely future developments, paying particular attention to the impact of market liberalization on a country characterized by a lack of domestic production, limited foreign upstream competition, and highly concentrated (and bundled) control over an essential input in the production of the final product: gas storage. I show that the upstream producer may practice his market power to capture some of the benefits of liberalization and increase the wholesale price, which hinders the desired decline of the end-user price in the long run. This pricing change in turn makes the entry of new players in the transition period more difficult. I furthermore analyze three prominent storage structure scenarios and conclude that higher consumer welfare can be reached only in the case of regulated storage access.

Keywords: Natural gas; liberalization; deregulation; successive oligopoly; monopoly; Czech Republic; gas storage. (search for similar items in EconPapers)
JEL-codes: D42 D43 L11 L12 L13 L51 (search for similar items in EconPapers)
Date: 2007-09
New Economics Papers: this item is included in nep-com, nep-cse, nep-ene, nep-ind and nep-mic
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