Territorial Restrictions and Consumer Welfare in a Mixed Oligopoly: The Japanese Gas Supply (2011.1)

"Territorial Restrictions and Consumer Welfare in a Mixed Oligopoly: The Japanese Gas Supply" (2011.1)
Eiji SATOH (Graduate School of Economics, Hitotsubashi University, and CPRC)
This paper assesses the consumer welfare effect of territorial restrictions in the Japanese gas supply market between 1998 and 2005. Territorial restrictions virtually prohibit the expansion of town-gas service areas in response to demand. Estimation reveals that characteristics of gas services play a significant role in demand substitution between town-gas and propane-gas. Simulation exercises indicate that if town-gas service expands to areas where town-gas pipelines have not been laid, some households switch to town-gas. In a static Cournot competition between propane-gas suppliers, this switch triggers a decline in the price of propane-gas, and it improves consumer welfare.
Keywords: consumer welfare, propane-gas, simulation analysis, territorial restriction, town-gas.
JEL classification codes: L43, L95