A natural monopoly in natural gas transmission

In this article, we test for subadditivity in the cost structure associated with transporting natural gas by Trans-Canada Pipelines Ltd. and measure for possible cost savings from increased competition that could be realized by removing the monopoly status granted by the National Energy Board. In me...

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Bibliographic Details
Published in:Energy economics 2003-09, Vol.25 (5), p.473-485
Main Authors: Gordon, D.V., Gunsch, K., Pawluk, C.V.
Format: Article
Language:English
Subjects:
Applied sciences
Cost control
Cost structure
Costs
Economic data
Economic theory
Economics
Energy
Energy economics
Energy market
Exact sciences and technology
Fossil fuels and derived products
Gas
General, economic and professional studies
Monopolies
Natural gas distribution
Natural gas transportation
Natural monopoly
Studies
Subadditivity
Transfer
Transport
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Summary:In this article, we test for subadditivity in the cost structure associated with transporting natural gas by Trans-Canada Pipelines Ltd. and measure for possible cost savings from increased competition that could be realized by removing the monopoly status granted by the National Energy Board. In measuring subadditivity, we apply both the Baumol et al. (Contestable Markets and the Theory of Industry Structure (1982)) and the Evans and Heckman (Am. Econ. Rev. 764 (1984) 613) procedures. Our results show evidence of subadditivity in the cost structure, and consequently, the possible benefits from increased competition resulting from splitting up the monopoly could be offset by the sacrifice of scale efficiencies.
ISSN:0140-9883
1873-6181
DOI:10.1016/S0140-9883(03)00057-4