We would like to thank Felix Höffler and Johannes Trüby for their helpful comments and suggestions.
Supply Disruptions and Regional Price Effects in a Spatial Oligopoly—An Application to the Global Gas Market
Article first published online: 3 JUL 2014
© 2014 John Wiley & Sons Ltd
Review of International Economics
Volume 22, Issue 5, pages 944–975, November 2014
How to Cite
Growitsch, C., Hecking, H. and Panke, T. (2014), Supply Disruptions and Regional Price Effects in a Spatial Oligopoly—An Application to the Global Gas Market. Review of International Economics, 22: 944–975. doi: 10.1111/roie.12138
- Issue published online: 3 OCT 2014
- Article first published online: 3 JUL 2014
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 Strait of Hormuz. This enables us to account for the oligopolistic nature and the asymmetry of the gas supply. We find that Japan 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.