Regional Market Power and Transport Capacity in the Gas Industry

This paper analyzes the role of gas pipeline capacity in mitigating regional market power. We characterize the policy prescriptions of various control schemes used by a network operator, and focus on transport capacity. We start from a situation where the network operator has the ability to use transfers, price, and capacity. We then restrict the set of available control instruments. We first consider the case where transfers cannot be used when setting price and capacity. Then, we examine the no-transfer no-price-control case. Our main finding is that restricting the set of control instruments does not necessarily lead to higher-capacity pipelines