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Residual Supply Curves of Canadian Natural Gas for Selected U.S. Citygate Markets
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This paper presents an econometric technique for estimating the single firm residual demand curve that does not require the estimation of demand cross-elasticities. The technique is particularly suited for the estimation of firm market power in product differentiated industries, where cross-elasticities are notoriously difficult to measure. One estimated parameter is directly related to a firm's markup of price over marginal cost when product differentiation is extensive, when an industry consists of a dominant firm and a price-taking fringe, when a Consistent Conjectures Equilibrium is the correct oligopoly solution concept, when firms are Stackelberg leaders relative to their environment, or when firms are perfect competitors. The estimates can indicate power over price in other circumstances. An instrumental variables technique is employed, using firm-individuated factor prices to identify firm-specific residual demand. Yet even when instruments are unavailable, the technique produces elasticity estimates biased in the conservative direction of disproving market power. This methodology is applied to estimate the market power of three firms in an industry characterized by product differentiation: brewing. Over our 1962–82 sample period, Pabst and Coors had similar national market shares and each had high shares in several states. Yet Pabst was virtually a price-taker while Coors possessed substantial market power. Anheuser-Busch had market power in the early part of the sample, but little after 1975 when Miller Brewing changed the competitive nature of the industry.
This paper examines the extent to which limitations in the transportation system for the natural gas market in the United States narrows the effectiveness of the NYMEX natural gas future contract as a hedging instrument and why a second contract with a different delivery point was approved during 1995. We find that the NYMEX contract is an effective hedging instrument for gas sold into pipelines for consumption in southern, eastern and midwestern states, but does, not provide an effective hedge for gas sold for Rocky Mountain and West Coast states.
. In this paper we develop a model of the law of one price in a network where many markets are linked with a structure of paths. We show that arbitrage-free prices depend on the structure of the network and so do price dynamics. Our estimates indicate that local bypass and open access pipeline transportation were instrumental in opening arbitrage paths to natural gas city markets and causing their prices to converge. Spot markets in the city gates, pipeline hubs, and production fields, that are scattered over distant points in the vast pipeline network in the United States, now form a single market.
Factor and Product Market 18The differentials with respect to the NOVA AECO price on that day were 0.88$/MMBtu for the PG&E Citygate, 2.43$/MMBtu for the Chicago Citygate and 33.08 for the New York Citygate. 18 rTradability and Equilibrium in Pacific Pork Rim Industries
- Christopher B Barrett
- Jau Li
- Rong
- Bailey
Barrett, Christopher B., Li, Jau Rong, and Bailey, DeeVon (2000). “Factor and Product Market 18The differentials with respect to the NOVA AECO price on that day were 0.88$/MMBtu for the PG&E Citygate, 2.43$/MMBtu for the Chicago Citygate and 33.08 for the New York Citygate. 18 rTradability and Equilibrium in Pacific Pork Rim Industries.” Journal of Agricultural and Resource Economics 25: 68-87