Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)
Price patterns resulting from different producer behavior in spatial equilibrium.
Abstract: We are concerned with economic analyses of markets from
the perspective of supporting a decision maker selling in the market. The
competitive pressure and the price formation are central issues. The goal
of this paper is to highlight the remarkably different price patterns
obtained from different modes of seller behavior in a spatial market. This
is exemplified by models of price taking versus the oligopolistic Cournot
mode of behavior. Although a particular market, namely the European market
for natural gas is used for illustration, the insights from this exercise
apply to any industry where suppliers have market power, their locations
differ, and their costs of supplying individual segments of the market are
non-negligible and differ. When market power is present and one seeks
insight into competition and price formation, details in other dimensions
cannot compensate for not modeling the exertion of market power.
Keywords: Price formation; Spatial market; Market power.; (follow links to similar papers)
JEL-Codes: C68; D41; D43; L11; L13; (follow links to similar papers)
20 pages, April 2, 2012
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