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Market Liberalization in the European Natural Gas Market - The Importance of Capacity Constraints and Efficiency Differences

Author

Listed:
  • Steven Brakman
  • Charles van Marrewijk
  • Arjen van Witteloostuijn
  • Charles van Marrewijk
Abstract
In the European Union, energy markets are increasingly being liberalized. A case in point is the European natural gas industry. The general expectation is that more competition will lead to lower prices and higher volumes, and hence higher welfare. This paper indicates that this might not happen for at least two reasons. First, energy markets, including the market for natural gas, are characterized by imperfect competition and increasing costs to develop new energy sources. As a result, new entrants in the market are less efficient than incumbent firms. Second, energy markets, again including the market for natural gas, are associated with capacity constraints. Prices are determined in residual markets where the least efficient firms are active. This is likely to lead to price increases, rather than decreases.

Suggested Citation

  • Steven Brakman & Charles van Marrewijk & Arjen van Witteloostuijn & Charles van Marrewijk, 2009. "Market Liberalization in the European Natural Gas Market - The Importance of Capacity Constraints and Efficiency Differences," CESifo Working Paper Series 2697, CESifo.
    • Handle: RePEc:ces:ceswps:_2697
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp2697.pdf
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    References listed on IDEAS

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    Cited by:

    1. Yu‐Fu Chen & Michael Funke, 2010. "Booms, Recessions And Financial Turmoil: A Fresh Look At Investment Decisions Under Cyclical Uncertainty," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(3), pages 290-317, July.
    2. Hulshof, Daan & van der Maat, Jan-Pieter & Mulder, Machiel, 2016. "Market fundamentals, competition and natural-gas prices," Energy Policy, Elsevier, vol. 94(C), pages 480-491.
    3. Slabá, Monika & Gapko, Petr & Klimešová, Andrea, 2013. "Main drivers of natural gas prices in the Czech Republic after the market liberalisation," Energy Policy, Elsevier, vol. 52(C), pages 199-212.
    4. Talipova, Aminam & Parsegov, Sergei G. & Tukpetov, Pavel, 2019. "Russian gas exchange: A new indicator of market efficiency and competition or the instrument of monopolist?," Energy Policy, Elsevier, vol. 135(C).

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    More about this item

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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