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Strategic Interdependence in European East-West Gas Trade: A Hierarchical Stackelberg Game Approach

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  • Waft Grais
  • Kangbin Zheng

Abstract

The current and potential benefits of European East-West gas trade are enormous for all participants. The new and more complex structure of the natural gas transit system, as emerged with political and economic changes in Eastern Europe and the former Soviet Union, has created uncertainties about the interdependence and interactions among the participants. Using a Stackelberg game with three layers of players (suppliers, transiters and importers), this paper establishes a framework to analyze rational behaviors of the participants and reasonable ways to formulate transparent, flexible, and incentive-compatible contracts. This framework is also used to show how to modify the trade contract to accommodate changes in the gas trade environment. Improving predictability of the players' reactions to external changes can enhance the reliability of gas trade and allow its expansion to benefit all participants.

Suggested Citation

  • Waft Grais & Kangbin Zheng, 1996. "Strategic Interdependence in European East-West Gas Trade: A Hierarchical Stackelberg Game Approach," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 61-84.
    • Handle: RePEc:aen:journl:1996v17-03-a05
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    Citations

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    Cited by:

    1. Andreas Chollet & Berit Meinhart & Christian von Hirschhausen & Petra Opitz, 2001. "Options for Transporting Russian Gas to Western Europe: A Game-theoretic Simulation Analysis," Discussion Papers of DIW Berlin 261, DIW Berlin, German Institute for Economic Research.
    2. Hubert, Franz & Orlova, Ekaterina, 2018. "Network access and market power," Energy Economics, Elsevier, vol. 76(C), pages 170-185.
    3. Le Coq, Chloé & Paltseva, Elena, 2012. "Assessing gas transit risks: Russia vs. the EU," Energy Policy, Elsevier, vol. 42(C), pages 642-650.
    4. Joris Morbee & Stef Proost, 2010. "Russian Gas Imports in Europe: How Does Gazprom Reliability Change the Game?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 79-110.
    5. Chyong, Chi Kong & Hobbs, Benjamin F., 2014. "Strategic Eurasian natural gas market model for energy security and policy analysis: Formulation and application to South Stream," Energy Economics, Elsevier, vol. 44(C), pages 198-211.
    6. Irina Suleymanova & Franz Hubert, 2007. "Strategic Investment in International Gas-Transport Systems: A Dynamic Analysis of the Hold-up Problem," Energy and Environmental Modeling 2007 24000059, EcoMod.
    7. Chollet, Andreas & Meinhart, Berit & von Hirschhausen, Christian R. & Opitz, Petra, 2001. "Options for transporting Russian gas to Western Europe: A game-theoretic simulation analysis," Discussion Papers 2001/10, Technische Universität Berlin, School of Economics and Management.
    8. Margarita M. Balmaceda, 2002. "EU Energy Policy and Future European Energy Markets: Consequences for the Central and East European States," MZES Working Papers 42, MZES.
    9. Mengyang Chen & Nan Li & Hailin Mu, 2024. "Assessing Risks on China’s Natural Gas Supply under Carbon Peaking Policies from Foreign–Domestic Perspectives," Energies, MDPI, vol. 17(4), pages 1-20, February.
    10. Cobanli, Onur, 2014. "Central Asian gas in Eurasian power game," Energy Policy, Elsevier, vol. 68(C), pages 348-370.
    11. Franz Hubert & Onur Cobanli, 2012. "Pipeline Power," Koç University-TUSIAD Economic Research Forum Working Papers 1224, Koc University-TUSIAD Economic Research Forum.
    12. Breton, Michele & Zaccour, Georges, 2001. "Equilibria in an asymmetric duopoly facing a security constraint," Energy Economics, Elsevier, vol. 23(4), pages 457-475, July.
    13. Hausken, Kjell & Plumper, Thomas, 2002. "Containing Contagious Financial Crises: The Political Economy of Joint Intervention into the Asian Crisis," Public Choice, Springer, vol. 111(3-4), pages 209-236, June.

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    JEL classification:

    • F0 - International Economics - - General

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