Competition in the natural gas pipeline industry: An economic policy analysis
The Federal Energy Regulatory Commission (FERC) currently regulates the price at which natural gas can be sold by regulated interstate natural gas pipelines. Whether pipelines should be deregulated depends, to an important extent, on the competitive nature of the market. The key question is whether pipelines can successfully raise price (i.e., the transport fee) and reduce output if the market is deregulated. In most natural gas pipeline markets, there are a small number of current suppliers. Opponents of deregulation argue that the unrestrained market power of pipelines in many local markets will introduce inefficiencies in the sale of natural gas. Implicit in their arguments is a narrow view of competition: the number of current suppliers. The competitive effect of potential entry is largely ignored. These commentators would argue that without potential entry, it may be true that the net social cost of deregulation exceeds the costs of maintaining present regulation. A study was conducted to determine the extent to which potential entry might constrain the exercise of market power by natural gas pipelines if price and entry regulation is removed. Potential entrants are defined in the context of antitrust markets. That is, these markets are consistent with the Department of Justice (DOJ) Merger Guidelines. The study attempts to quantify the effects of potential entry on the market power of current suppliers. The selection of potential entrants therefore considers a number of factors (such as the size of the nearby supplier and the distance to the market) that are expected to affect the likelihood of collision in a deregulated market. The policy implications of the study are reviewed.
- OSTI ID:
- 6237308
- Country of Publication:
- United States
- Language:
- English
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Related Subjects
NATURAL GAS INDUSTRY
COMPETITION
DEREGULATION
ANTITRUST LAWS
ECONOMICS
MARKETERS
NATURAL GAS DISTRIBUTION SYSTEMS
PIPELINES
PRICES
SALES
ENERGY SYSTEMS
INDUSTRY
LAWS
030600* - Natural Gas- Economic
Industrial
& Business Aspects
032000 - Natural Gas- Transport
Handling
& Storage