Competition in the Natural Gas Pipeline Industry: An Economic Policy Analysis

By Edward C. Gallick | Go to book overview

4
THE SHORT RUN

COMPETITION IN THE SHORT RUN

In the short run, there is no adjustment period to provide nearby rivals with an opportunity to respond to a cartel price. Only those pipelines that utilize their own transmission lines to currently sell in the market are relevant. Thus, potential entrants (i.e., nearby pipelines that could construct a hookup and divert gas into the market in question) are ignored. On the other hand, intrastate pipeline deliveries into the market from gas fields within the state and imports from foreign gas suppliers can affect the profitability of collusive behavior in the short term. Although these alternative sources of supply have been largely ignored in earlier studies, we consider whether such suppliers are likely to gain admission into the collusive group.

Thus, all current suppliers (interstate and intrastate pipelines and foreign suppliers) are tested to determine whether they are sufficient in size to undercut a local cartel if denied membership. 1 Current suppliers who cannot meet the size requirement will be grouped together and retested. Once the number of colluding suppliers is determined, the HHI can be computed.

Pipelines that pass through a local market but make no deliveries are ignored in this period of analysis. The short run does not allow sufficient time for a nondelivering pipeline to secure the necessary operating permits and approvals to install a tap or terminal and begin new service. Equally important, the pipeline is unlikely to have sufficient excess capacity or divertible gas to meet short-run peaks in demand. It takes time for supply contracts to expire and for the pipeline to substitute higher-valued customers for lower-valued customers. For these reasons, such "pass-through" pipelines are distinguished from current suppliers. In our view, the time requirements

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Competition in the Natural Gas Pipeline Industry: An Economic Policy Analysis
Table of contents

Table of contents

  • Title Page iii
  • Contents vii
  • Tables and Figures ix
  • Preface xi
  • Acknowledgments xv
  • 1 1
  • 2 - The Natural Gas Industry 9
  • 3 - The Methodology 19
  • Introduction 19
  • 4 - The Short Run 39
  • 5 - The Intermediate Run 49
  • Introduction 49
  • Conclusion 69
  • 6 - The Long Run 73
  • 7 - The Policy Choice 89
  • Introduction 89
  • Appendix A MSAs CLASSIFIED BY STATE 93
  • Appendix B STANDARD MARKET SHARE REPORT 105
  • Appendix C THE SIZE OF THE POTENTIAL ENTRANT 131
  • Notes 135
  • Appendix D U.S. CENSUS REGIONS 139
  • Appendix E NEARBY SUPPLIERS BY TYPE AND BY MARKET 141
  • Notes 243
  • References 273
  • Index 279
  • About the Author 285
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