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Price formulation and the law of one price in internationally linked markets: an examination of the natural gas markets in the USA and Canada

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  • Kyle Olsen
  • James Mjelde
  • David Bessler

Abstract

The degree to which the law of one price holds (integration) along with determining each individual markets’ role in price discovery is examined for 11 major natural gas markets, six from the USA and five from Canada. Deregulation, technological advances, and trade agreements have opened the USA’s and Canada’s natural gas market to new and extensive interactions. The 11 natural gas market prices are tied together with ten long-run co-integration relationships with all markets included in the co-integration space, providing evidence the markets are integrated. The degree of integration varies by region. Markets geographically adjacent to each other tend to be more highly integrated than markets separated by distance. Further results indicate that there is no clear price leader among the 11 markets. Including more US and Canadian markets than previous studies, show markets in both eastern and western USA and Canada are important in the price discovery process. Copyright Springer-Verlag Berlin Heidelberg 2015

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  • Kyle Olsen & James Mjelde & David Bessler, 2015. "Price formulation and the law of one price in internationally linked markets: an examination of the natural gas markets in the USA and Canada," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 54(1), pages 117-142, January.
    • Handle: RePEc:spr:anresc:v:54:y:2015:i:1:p:117-142
    DOI: 10.1007/s00168-014-0648-7
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    7. Núñez, Héctor M. & Trujillo-Barrera, Andres & Etienne, Xiaoli, 2022. "Declining integration in the US natural gas market," Resources Policy, Elsevier, vol. 78(C).
    8. Harold Glenn A. Valera & Mark J. Holmes & Valerien O. Pede & Jean Balié, 2023. "How convergent are rice export prices in the international market?," Agricultural Economics, International Association of Agricultural Economists, vol. 54(1), pages 127-141, January.
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    Keywords

    Q41; L71;

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels

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