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

By Edward C. Gallick | Go to book overview

7
THE POLICY CHOICE

INTRODUCTION
The principal finding of this study is that potential entry is likely to provide a significant competitive restraint on monopoly power if natural gas entry markets were to be decontrolled. Although the majority of these markets may be served by only one or two suppliers, the number of potential entrants is generally so large that any attempt by current suppliers to collude to raise the market price is likely to fail. That is, if current suppliers attempted to set a supracompetitive price, most LDCs and other large users could turn to potential entrants for new service. Even if this new evidence on potential entry is interpreted conservatively, some form of deregulation is likely to be warranted.
POLICY OPTIONS

Complete Federal Decontrol in Entry Markets
Based on our sample of 148 entry markets, a strong case for complete federal deregulation in entry markets can be made based on the following preconditions:
1. The price of delivered gas is expected to increase by 5 to 10 percent;
2. Nearby pipelines can profitably construct 140-mile pipeline hookups;
3. Nearby pipelines are able to divert 50 percent of current deliveries into new markets;
4. The win ratio is 40 percent; and

-89-

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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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