Price Regulation in a Vertically Integrated Natural Gas Industry: The Case of Mexico
Review of Network Economics, Vol. 4, No. 1, March 2005
18 Pages Posted: 14 Apr 2005
The Comision Reguladora de Energia of Mexico has implemented a netback rule for linking the Mexican natural gas price to the Texas natural gas benchmark price in an industry structure characterized by a vertically integrated state-owned monopoly. This paper shows that in an open economy where agents can choose between gas and alternative fuels, and where the density function describing the distribution of agents along the pipeline can have mass points, the netback rule is Pareto optimal.
Keywords: Price regulation, vertical integration, natural gas, Mexico
JEL Classification: L51, L94
Suggested Citation: Suggested Citation