Reinforcing Buyer Power: Trade Quotas and Supply Diversification in the EU Natural Gas Market

36 Pages Posted: 21 Apr 2010 Last revised: 26 Apr 2010

See all articles by Svetlana Ikonnikova

Svetlana Ikonnikova

University of Texas at Austin

Gijsbert Zwart

University of Groningen

Date Written: April 21, 2010

Abstract

We consider a market with concentrated domestic buyers and concentrated foreign sellers and explore the extent to which domestic regulation helps to increase the buyers' countervailing power against the foreign sellers. We use the Shapley value to describe the distribution of the trade surplus and market power in this bilateral oligopoly. With the EU natural gas market in mind, we consider how a regulator (the EU) can use import quotas and encourage supply diversification to strengthen the buyers' power and increase their surplus. We find that buyers can benefit from bilateral but not aggregate trade restrictions. Those who invest in supply diversification gain, with other buyers enjoying positive externalities; sellers lose profits and power. Thus we provide a rationale for the current EU support for importers' investment plans.

Keywords: buyer power, Shapley value, strategic trade policy, natural gas market

JEL Classification: F12, L12, L41, C71, Q48

Suggested Citation

Ikonnikova, Svetlana and Zwart, Gijsbert, Reinforcing Buyer Power: Trade Quotas and Supply Diversification in the EU Natural Gas Market (April 21, 2010). TILEC Discussion Paper No. 2010-018, Available at SSRN: https://ssrn.com/abstract=1593546 or http://dx.doi.org/10.2139/ssrn.1593546

Svetlana Ikonnikova (Contact Author)

University of Texas at Austin ( email )

2317 Speedway
Austin, TX Texas 78712
United States

Gijsbert Zwart

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV
Netherlands

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