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Supply Disruptions and Regional Price Effects in a Spatial Oligopoly—An Application to the Global Gas Market
Author(s) -
Growitsch Christian,
Hecking Harald,
Panke Timo
Publication year - 2014
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12138
Subject(s) - economics , market power , oligopoly , supply and demand , microeconomics , supply shock , complementarity (molecular biology) , industrial organization , international economics , monetary economics , monopoly , monetary policy , cournot competition , biology , genetics
Supply shocks in the global gas market may affect countries differently, as the market is regionally interlinked but not perfectly integrated. Additionally, high supply‐side concentration may expose countries to market power in different ways. To evaluate the strategic position of importing countries with regard to gas supplies, we disentangle the import price into different components and characterize each component as price increasing or price decreasing. Because of the complexity of the interrelations in the global gas market, we use an equilibrium model programmed as a mixed complementarity problem ( MCP ) and simulate the blockage of liquefied natural gas ( LNG ) flows through the S trait of H ormuz. This enables us to account for the oligopolistic nature and the asymmetry of the gas supply. We find that J apan faces the most severe price increases, as the Japanese gas demand completely relies on LNG supply. In contrast, European countries such as the UK benefit from good interconnection to the continental pipeline system and domestic price taking production, both of which help to mitigate an increase in physical costs of supply as well as in the exercise of market power.