Modeling Strategic Investment Decisions in Spatial Markets

Stefan Lorenczik, Raimund Malischek and Johannes Trüby ()
Additional contact information
Stefan Lorenczik: Energiewirtschaftliches Institut an der Universitaet zu Koeln
Raimund Malischek: Energiewirtschaftliches Institut an der Universitaet zu Koeln
Johannes Trüby: Energiewirtschaftliches Institut an der Universitaet zu Koeln
Authors registered in the RePEc Author Service: Johannes Trueby

No 2014-9, EWI Working Papers from Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)

Abstract: Markets for natural resources and commodities are often oligopolistic. In these markets, production capacities are key for strategic interaction between the oligopolists. We analyze how different market structures influence oligopolistic capacity investments and thereby affect supply, prices and rents in spatial natural resource markets using mathematical programing models. The models comprise an investment period and a supply period in which players compete in quantities. We compare three models, one perfect competition and two Cournot models, in which the product is either traded through long-term contracts or on spot markets in the supply period. Tractability and practicality of the approach are demonstrated in an application to the international metallurgical coal market. Results may vary substantially between the different models. The metallurgical coal market has recently made progress in moving away from long-term contracts and more towards spot market-based trade. Based on our results, we conclude that this regime switch is likely to raise consumer rents but lower producer rents. The total welfare differs only negligibly.

Keywords: Spatial Natural Resource Markets; Capacity Investment; Oligopoly; Equilibrium Problem with Equilibrium Constraints (EPEC); Coal (search for similar items in EconPapers)
JEL-codes: C61 C70 L13 L72 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2014-04-15
New Economics Papers: this item is included in nep-com
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.ewi.uni-koeln.de/cms/wp-content/upload ... -Spatial-Markets.pdf Full text (application/pdf)

Related works:
Journal Article: Modeling strategic investment decisions in spatial markets (2017)
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:ris:ewikln:2014_009

Access Statistics for this paper

More papers in EWI Working Papers from Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI) Contact information at EDIRC.
Bibliographic data for series maintained by Sabine Williams ().