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A model of successive oligopoly is applied to the European natural gas market. The model has a two-level structure, in which Cournot producers are also Stackelberg leaders with respect to traders, who may be Cournot oligopolists or price takers. Several conclusions emerge. First, successive oligopoly ("double marginalization") yields higher prices and lower consumer welfare than if oligopoly exists only on one level. Second, due to the high concentration of traders, prices are distorted more by market power in trading than in production. Third, trader profits depend on whether producers can price discriminate among consuming sectors; if so, producers collect a greater share of the profits. Finally, when traders increase in number, prices approach competitive levels. Thus, it is important to prevent concentration in the downstream gas market. If oligopolistic trading cannot be prevented, vertical integration should not be discouraged, especially if it would increase the number of traders.

No abstract

If spot markets for electric power decide to cooperate and eliminate barriers between them, what will happen to competition and prices in those markets? And who will benefit? In the case of the Belgian and Dutch markets, market coupling would permit more efficient use of intercountry transmission by counting only net flows against transmission limits, by improving access to the Belgian market, and by eliminating the mismatch in timing between interface auctions and the energy spot market. A Cournot market model that accounts for the region's transmission pricing rules and limitations is used to simulate market outcomes with and without market coupling, accounting for the first two of these three impacts of coupling. The result would be an improvement in social surplus on the order of 10 8 €/year, unless market coupling encourages the largest producer in the region to switch from a price-taking strategy in Belgium to a Cournot strategy due to a perceived diminishment of the threat of regulatory intervention. Whether market coupling would benefit Dutch consumers also depends on the behavior of this company. The results illustrate how large-scale oligopoly models can be useful for assessing market integration.

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