Competition in a Network of Markets: The Natural Gas Industry
Federal regulators recently allowed natural gas pipelines to offer transmission services to their customers. Pipelines previously were merchant carriers that were required by regulatory decree to own the gas they transported. Now, pipelines can voluntarily choose to function as pure transportation firms (contract carriers) and their customers can use transportation to buy gas from suppliers connected to the pipeline network. A major aim of this research is to determine the extent to which pipelines have become interconnected transporters of gas and how competition works in an interconnected transmission network. The institutions created by market participants and the transactions that they now can make are examined in detail. Monthly and daily spot gas field prices are examined. The empirical results lead to the conclusion that pipeline transportation created a national market for natural gas.