Analysis of the World Market for Steam Coal Using a Complementarity Model

20 Pages Posted: 29 Jun 2009

See all articles by Clemens Haftendorn

Clemens Haftendorn

German Institute for Economic Research (DIW Berlin)

Franziska Holz

German Institute for Economic Research (DIW Berlin)

Date Written: September 2008

Abstract

With its resource availability and the prospect of climate friendly technology, coal continues to play an important role in the global energy sector. We develop a complementarity model of the international market for steam coal. We want to analyze the level of competition in this market which is strategic for the importers' security of energy supply. In a spatial equilibrium framework, we assume the steam coal exporters to maximize their profits by choosing the optimal quantity to sell to each importing country. We compare two possible scenarios: perfect competition and Cournot competition. The results, especially the price levels, indicate that the Cournot model is not realistic, suggesting that the producing countries do not exert market power. However, the trade flows and prices observed in reality suggests that there is some form of market power with price discrimination, possibly following a Bertrand model in a spatial setting.

Keywords: coal, energy, market structure, simulation model

JEL Classification: L11, L72, C69

Suggested Citation

Haftendorn, Clemens and Holz, Franziska, Analysis of the World Market for Steam Coal Using a Complementarity Model (September 2008). DIW Berlin Discussion Paper No. 818, Available at SSRN: https://ssrn.com/abstract=1425028 or http://dx.doi.org/10.2139/ssrn.1425028

Clemens Haftendorn (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Franziska Holz

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

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