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Investment in transport capacity and regulation of regional monopolies in natural gas commodity markets

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  • Farid Gasmi
  • Juan Daniel Oviedo

Abstract

This paper develops a model of the regulator-regulated firm relationship in a regional natural gas commodity market which can be linked to a competitive market by a pipeline. We characterize normative policies under which the regulator, in addition to setting the level of the capacity of the pipeline, regulates the price of gas, under asymmetric information on the firm´s technology, and may (or may not) operate (two-way) transfers between consumers and the firm. We then focus on capacity and investigate how its level responds to the regulator´s taking account of the firm´s incentive compatibility constraints. The analysis yields some insights on the role that transport capacity investments may play as an instrument to improve the efficiency of geographically isolated markets.

Suggested Citation

  • Farid Gasmi & Juan Daniel Oviedo, 2012. "Investment in transport capacity and regulation of regional monopolies in natural gas commodity markets," Documentos de Trabajo 10074, Universidad del Rosario.
    • Handle: RePEc:col:000092:010074
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    File URL: http://repository.urosario.edu.co/bitstream/handle/10336/10966/10074.pdf
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    References listed on IDEAS

    as
    1. Cremer, Helmuth & Gasmi, Farid & Laffont, Jean-Jacques, 2003. "Access to Pipelines in Competitive Gas Markets," Journal of Regulatory Economics, Springer, vol. 24(1), pages 5-33, July.
    2. Baron, David P., 1989. "Design of regulatory mechanisms and institutions," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 24, pages 1347-1447, Elsevier.
    3. Farid Gasmi & Juan Daniel Oviedo, 2012. "Controlling regional monopolies in the natural gas industry: the role of transport capacity," Documentos de Trabajo 10073, Universidad del Rosario.
    4. Severin Borenstein & James. Bushnell & Steven Stoft, 2000. "The Competitive Effects of Transmission Capacity in A Deregulated Electricity Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 294-325, Summer.
    5. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 2, number 2.
    6. Cremer, Helmuth & Laffont, Jean-Jacques, 2002. "Competition in gas markets," European Economic Review, Elsevier, vol. 46(4-5), pages 928-935, May.
    7. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 1, number 1.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Natural gas; Regulation; Transport capacity.;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities

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