Market power and the sale of Ontario residential natural gas: An institutional analysis and a laboratory experiment.

摘要

The Ontario residential natural gas market underwent a significant institutional change in 1986, after the federal government decontrolled natural gas prices. Currently, consumers may sign up for fixed-cost natural gas from a broker, or they may continue to be served by the regulated distribution company. This thesis examines the economic effects on consumers of the institutional change, and particularly whether or not market power was enhanced by the change. In the thesis, I first present the industrial organization of the residential natural gas sector, and explain the institutional evolution using an institutional economic approach. I then construct a model of the market environment, with sellers acting as middlemen in a well-defined Bertrand oligopoly setting with no production constraints and single-unit consumer demands. In this model, the only Nash equilibrium in the one-period game is the joint profit maximizing price, and its likelihood of obtaining depends on the nature of the cost of signing up new customers.; I then take a version of this model into the laboratory with human subject sellers and simulated buyers and run six replications each of a balanced treatment design under a unique information mechanism that parallels individual customer canvassing used by sellers in the naturally-occurring market. Treatment variables are: number of sellers, number of simulated at-cost sellers present, and presence of input cost uncertainty for sellers. I find that adding any seller to the market has about the same impact on market price, irrespective of whether it is a human subject or a simulated at-cost seller. Although increasing the number of sellers does decrease the market price somewhat, it does not bring about the competitive outcome predicted by the benchmark microeconomic model.; This research contributes to the literature on policy making and energy market design, as well as to experimental methodology aimed at policy evaluation.