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Take or Pay Contracts and Market Segmentation

Carlo Scarpa () and Michele Polo ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines competition in the liberalized natural gas market. Each .firm has 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. In equilibrium each .firm approaches a different segment of the market and sets the monopoly price, i.e. market segmentation. Antitrust ceilings do not prevent such an outcome while the separation of wholesale and retail activities and the creation of a wholesale market induces generalized competition and low margins in the retail segment.

Keywords: Entry; Segmentation; Decentralized market (search for similar items in EconPapers)
JEL-codes: L11 L13 L95 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ene and nep-mic
Date: 2007
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