Pricing Liquid Petroleum Gas in Mexico

This paper considers the regulation of pricing of liquid petroleum gas in Mexico. We construct a model that incorporates all information essential to the pricing question and derive relationships that should hold between prices in Mexico and prices in world markets. Prices in Mexico can be tied to t...

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Bibliographic Details
Published in:Southern economic journal 2000-01, Vol.66 (3), p.742-753
Main Authors: Brito, Dagobert L., Littlejohn, William Laney, Rosellón, Juan
Format: Article
Language:English
Subjects:
Arbitrage
Capital costs
Company automobiles
Comparative studies
Economic models
Economic theory
Gas utilities
Import prices
Imports
International markets
Liquefied natural gas
Liquefied petroleum gas
Liquefied petroleum gas industry
Liquids
LPG
Market prices
Market structure
Mexico
Oil market
Petroleum
Pipelines
Price regulation
Price regulations
Prices
Prices and rates
Pricing
Production costs
Propane
Regulation
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Summary:This paper considers the regulation of pricing of liquid petroleum gas in Mexico. We construct a model that incorporates all information essential to the pricing question and derive relationships that should hold between prices in Mexico and prices in world markets. Prices in Mexico can be tied to the readily observable prices in the United States by a netback rule. However, this rule can lead to incentives to increase the price of domestic liquid petroleum gas by diverting production from the regulated market.
ISSN:0038-4038
2325-8012
DOI:10.1002/j.2325-8012.2000.tb00285.x