Asymmetric price responses, market integration and market power: A study of the U.S. natural gas market

We studied the market performance at selected, representative natural gas trading hubs in the U.S. and documented different price behaviors among various hubs. With NYMEX prices as the competitive benchmark, we found empirically that the spot price responses at some trading hubs were systematically asymmetric, thus demonstrating a market advantage by either buyers or sellers. We further found that the presence of market power was a very plausible explanation for this price behavior at some hubs.

[1]  Price Dispersion in a Model with Middlemen and Oligopolistic Market Makers: A Theory and an Application to the North American Natural Gas Market , 2004 .

[2]  Alex Cristofaro,et al.  Optimizing Tax Strategies to Reduce Greenhouse Gases Without Curtailing Growth , 1991 .

[3]  James Bushnell,et al.  Market Power in Electricity Markets: Beyond Concentration Measures , 1999 .

[4]  Commodity convenience yield and risk premium determination: The case of the U.S. natural gas market , 2006 .

[5]  Frank A. Wolak,et al.  Diagnosing Market Power in California's Restructured Wholesale Electricity Market , 2000 .

[6]  Daniel F. Spulber.  Market Making by Price-Setting Firms , 1996 .

[7]  R. Pindyck.  The Dynamics of Commodity Spot and Futures Markets: A Primer , 2001 .

[8]  R. Pindyck.  VOLATILITY AND COMMODITY PRICE DYNAMICS , 2004 .

[9]  S. Radchenko.  Oil price volatility and the asymmetric response of gasoline prices to oil price increases and decreases , 2005 .

[10]  Empirical evidence of strategic bidding in California ISO real-time market , 2001 .

[11]  Zhenyan Zhu,et al.  EnronOnline and Informational Efficiency in the U.S. Natural Gas Market , 2004 .

[12]  F. Wolak,et al.  The Impact of Market Rules and Market Structure on the Price Determination Process in the England and Wales Electricity Market , 2001 .

[13]  E. Kahn,et al.  A quantitative analysis of pricing behavior in California's wholesale electricity market during summer 2000 , 2001, 2001 Power Engineering Society Summer Meeting. Conference Proceedings (Cat. No.01CH37262).

[14]  S. Johansen,et al.  MAXIMUM LIKELIHOOD ESTIMATION AND INFERENCE ON COINTEGRATION — WITH APPLICATIONS TO THE DEMAND FOR MONEY , 2009 .

[15]  N. M. Fehr,et al.  SPOT MARKET COMPETITION IN THE UK ELECTRICITY INDUSTRY , 1993 .

[16]  Barbara Rossi,et al.  Confidence Intervals for Half-Life Deviations From Purchasing Power Parity , 2005 .

[17]  Frode Steen,et al.  Testing for Market Power Using a Dynamic OLigopoly Model , 1999 .

[18]  John T. Cuddington,et al.  Assessing the Degree of Spot Market Integration for U.S. Natural Gas: Evidence from Daily Price Data , 2006 .

[19]  A. D. Vany,et al.  Pipeline Access and Market Integration in the Natural Gas Industry: Evidence from Cointegration Tests , 1993 .

[20]  John Rust,et al.  Middlemen versus Market Makers: A Theory of Competitive Exchange , 2001, Journal of Political Economy.

[21]  Søren Johansen,et al.  Determination of Cointegration Rank in the Presence of a Linear Trend , 1992 .

[22]  W. Walls.  A cointegration rank test of market linkages with an application to the U.S. natural gas industry , 1994 .

[23]  Price Convergence Across Natural Gas Fields and City Markets , 1994 .

[24]  Daniel F. Spulber.  Market Microstructure: Intermediaries and the Theory of the Firm , 1999 .

[25]  Mitchell A. Orenstein.  How Politics and Institutions Affect Pension Reform in Three Postcommunist Countries , 1999 .