The gas chain: influence of its specificities on the liberalisation process. NBB Working Papers. No. 122, 16 November 2007

Like other network industries, the European gas supply industry has been liberalised, along the lines of what has been done in the United Kingdom and the United States, by opening up to competition the upstream and downstream segments of essential transmission infrastructure. The aim of this first working paper is to draw attention to some of the stakes in the liberalisation of the gas market whose functioning cannot disregard the network infrastructure required to bring this fuel to the consumer, a feature it shares with the electricity market. However, gas also has the specific feature of being a primary energy source that must be transported from its point of extraction. Consequently, opening the upstream supply segment of the market to competition is not so obvious in the European context, because, contrary to the examples of the North American and British gas markets, these supply channels are largely in the hands of external suppliers and thus fall outside the scope of EU legislation on the liberalisation and organisation of the internal market in gas. Competition on the downstream gas supply segment must also adapt to the constraints imposed by access to the grid infrastructure, which, in the case of gas in Europe, goes hand in hand with the constraint of dependence on external suppliers. Hence the opening to competition of upstream and downstream markets is not "synchronous", a discrepancy which can weaken the impact of liberalisation. Moreover, the separation of activities necessary for ensuring free competition in some segments of the market is coupled with major changes in the way the gas chain operates, with the appearance of new markets, new price mechanisms and new intermediaries. Starting out from a situation where gas supply was in the hands of vertically-integrated operators, the new regulatory framework that has been set up must, on the one hand, ensure that competitive forces can be given free rein, and, on the other hand, that free and fair competition helps the gas chain to operate coherently, at lower cost and in the interests of consumers, for whom the stakes are high as natural gas is an important input for many industrial manufacturing processes, even a "commodity" almost of basic necessity

Agency Theory and Supply Chain Management: Goals and Incentives in Supply Chain Organisations

Purpose Agency theory (AT) offers opportunities to examine how the risk of opportunism can be prevented or minimised along supply chain organisations using incentives to achieve goal alignment. Methodology The study presents evidence of how members of such organisations achieve goal alignment through the use of incentives by empirically examining two complete supply chain organisations, including final customers, within the UK agri-food industry using a case study methodology. Findings The findings show that contractual goals can be divided into two different categories, shared supply chain organisational goals, and independent goals of each individual participant. In addition to monitoring ability, incentives can also be classified into short term financial and long term social incentives. Product attributes, in particular credence attributes, are also identified as having implications for both goals and incentives. Research limitations The supply chain perspective and case study methodology mean that the research findings cannot be generalised to other supply chains. A further limitation of the research is the use of different methods of data collection at the final customer point. Practical Implications Managers must ensure that appropriate incentives for all departments and individuals are designed to deliver the strategic goals of the supply chain organisation

Long-term vs. Short-term Contracts; A European perspective on natural gas

This paper analyses the economics of long-term gas contracts under changing institutional conditions, mainly gas sector liberalisation. The paper is motivated by the increasingly tense debate in continental Europe, UK and the US on the security of long-term gas supply. We discuss the main issues regarding long-term contracts, i.e. the changing role of the flexibility clause, the effect of abandoning the destination clause, and the strategic behaviour of producers between long-term sales and spot-sales. The literature suggests consumers and producers benefit from risk hedging through long-term contracts. Furthermore long-term contracts may reduce exercise of market power. This was argued to benefit consumers at the ‘expense’ of producers’ profits. Our analysis shows if the long-run demand elasticity is significantly lower than the short-run elasticity, both strategic producers and consumers benefit from lower prices and larger market volume. Some policy implications of the findings are also discussed

Long-Term Contracts and Asset Specificity Revisited –An Empirical Analysis of Producer-Importer Relations in the Natural Gas Industry

In this paper, we analyze structural changes in long-term contracts in the international trade of natural gas. Using a unique data set of 262 long-term contracts between natural gas producers and importers, we estimate the impact of different institutional, structural and technical variables on the duration of contracts. We find that contract duration decreases as the market structure of the industry develops to more competitive regimes. Our main finding is that contracts that are linked to an asset specific investment are on average four years longer than those who are not

Revenue Sharing, Demand Uncertainty, and Vertical Control of Competing Firms

This paper argues that revenue sharing is a valuable instrument in vertically separated industries when there is intrabrand competition among the downstream firms, demand is stochastic or variable, and downstream inventory is chosen before demand is realized. In these environments, the upstream firm would like to simultaneously soften downstream competition and encourage efficient inventory holding. Traditional two-part tariffs cannot achieve both objectives in the presence of downstream competition. Raising the price of the inputs softens price competition but distorts the downstream firms' inventory decisions. We argue that revenue sharing, combined with a low input price, aligns the incentives in the vertical chain. The use of revenue sharing in video rental retailing is discussed. Blockbuster in particular has used revenue sharing in conjunction with heavy marketing of availability to grow significantly in the video rental retail industry. Many other outlets use revenue sharing as well. Some antitrust concerns have been raised by smaller firms suggesting that revenue sharing might be an anticompetitive vertical restraint. Although our model does not address retailer market power, we show that revenue sharing contracts can be used by upstream firms increase inventory holding and consumer welfare.

Governance for quality management in smallholder-based tropical food chains

Abstract The paper provides a framework that focuses on the linkages between several key dimensions of supply chain organization and performance of perishable tropical food products. The focus is on the relationship between governance regime and quality management. However, two other but related variables are taken into account because they impact on the relationship between governance and quality management. These variables are channel choice and value added distribution in the supply chain. Governance regime is reflecting how to enhance coordination and trust amongst supply chain partners and how to reduce transaction costs. Quality management is dealing with how to manage food technology processes such that required quality levels can be improved and variability in quality of natural products can be exploited. Governance regimes in relation to quality management practices are discussed to the extent that supply chain partners are able, or are enabled, to invest in required quality improve-ments. Reduction of transaction costs, creation of trust-based networks and proper trade-offs between direct and future gains may offer substantial contributions to effective quality management and enforcement. This framework has been applied to nine case studies on smallholder-based food supply chains originating from developing countries (Ruben et al., 2007). Three of these case studies are discussed in this paper to illustrate what challenges can be derived from the case studies. The selected case studies concern fish originating from Kenya, mango originating from Costa Rica and vegetables produced in China

Governance for quality management in smallholder-based tropical food chains

The paper provides a framework that focuses on the linkages between several key dimensions of supply chain organization and performance of perishable tropical food products. The focus is on the relationship between governance regime and quality management. However, two other but related variables are taken into account because they impact on the relationship between governance and quality management. These variables are channel choice and value added distribution in the supply chain. Governance regime is reflecting how to enhance coordination and trust amongst supply chain partners and how to reduce transaction costs. Quality management is dealing with how to manage food technology processes such that required quality levels can be improved and variability in quality of natural products can be exploited. Governance regimes in relation to quality management practices are discussed to the extent that supply chain partners are able, or are enabled, to invest in required quality improve¬ments. Reduction of transaction costs, creation of trust-based networks and proper trade-offs between direct and future gains may offer substantial contributions to effective quality management and enforcement. This framework has been applied to nine case studies on smallholder-based food supply chains originating from developing countries (Ruben et al., 2007). Three of these case studies are discussed in this paper to illustrate what challenges can be derived from the case studies. The selected case studies concern fish originating from Kenya, mango originating from Costa Rica and vegetables produced in China.Agribusiness, Agricultural and Food Policy,

The gas chain : influence of its specificities on the liberalisation process

Like other network industries, the European gas supply industry has been liberalised, along the lines of what has been done in the United Kingdom and the United States, by opening up to competition the upstream and downstream segments of essential transmission infrastructure. The aim of this first working paper is to draw attention to some of the stakes in the liberalisation of the gas market whose functioning cannot disregard the network infrastructure required to bring this fuel to the consumer, a feature it shares with the electricity market. However, gas also has the specific feature of being a primary energy source that must be transported from its point of extraction. Consequently, opening the upstream supply segment of the market to competition is not so obvious in the European context, because, contrary to the examples of the North American and British gas markets, these supply channels are largely in the hands of external suppliers and thus fall outside the scope of EU legislation on the liberalisation and organisation of the internal market in gas. Competition on the downstream gas supply segment must also adapt to the constraints imposed by access to the grid infrastructure, which, in the case of gas in Europe, goes hand in hand with the constraint of dependence on external suppliers. Hence the opening to competition of upstream and downstream markets is not "synchronous", a discrepancy which can weaken the impact of liberalisation. Moreover, the separation of activities necessary for ensuring free competition in some segments of the market is coupled with major changes in the way the gas chain operates, with the appearance of new markets, new price mechanisms and new intermediaries. Starting out from a situation where gas supply was in the hands of vertically-integrated operators, the new regulatory framework that has been set up must, on the one hand, ensure that competitive forces can be given free rein, and, on the other hand, that free and fair competition helps the gas chain to operate coherently, at lower cost and in the interests of consumers, for whom the stakes are high as natural gas is an important input for many industrial manufacturing processes, even a "commodity" almost of basic necessity.network industries, gas industry, gas utility, liberalisation, regulation, deregulation, market structure, European gas supply, oligopoly, OPEG

Market-based Options for Security of Energy Supply

Energy market liberalization and international economic interdependence have affected governments’ ability to react to security of supply challenges. On the other side, whereas in the past security of supply was largely seen as a national responsibility, the frame of reference has increasingly become the EU in which liberation increases security of supply mainly by increasing the number of markets participants and improving the flexibility of energy systems. In this logic, security of supply becomes a risk management strategy with a strong inclination towards cost effectiveness, involving both the supply and the demand side. Security of supply has two major components that interrelate: cost and risk. This paper focus the attention on costs in the attempt to develop a market compatible approach geared towards security of supply.Energy supply, Market-based options