Entry Without Competition

Michele Polo and Carlo Scarpa

No 245, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

Abstract: This paper examines competition in a liberalized market, with reference to some key features of the natural gas industry. Each firm has a low (zero) marginal cost core capacity, due to long term contracts with take or pay obligations, and additional capacity at higher marginal costs. The market is decentralized and the firms decide which customers to serve, competing then in prices. We show that under both sequential and simultaneous entry, there is a strong incentive to segment the market: when take-or-pay obligations are still to be covered, entering and competing for the same customers implies low margins. If instead a firm is left as a monopolist on a fraction of the market, exhausting its obligation, it has no further incentive to enter a second market, where the rival will be monopolist as well. Hence, we obtain entry without competition. Antitrust ceilings do not prevent such an outcome while a wholesale pool market induces generalized competition and low margins in the retail segment.

Date: 2003
New Economics Papers: this item is included in nep-com, nep-ent and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://repec.unibocconi.it/igier/igi/wp/2003/245.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:igi:igierp:245

Ordering information: This working paper can be ordered from
https://repec.unibocconi.it/igier/igi/

Access Statistics for this paper

More papers in Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University via Rontgen, 1 - 20136 Milano (Italy).
Bibliographic data for series maintained by ().