Trade quotas and buyer power, with an application to the e.u. natural gas market

Svetlana Ikonnikova, Gijsbert T.J. Zwart

Research output: Contribution to journalArticlepeer-review

11 Scopus citations

Abstract

We consider a market in which domestic buyers negotiate contracts with foreign sellers, and explore how trade quotas can help to increase the buyers' countervailing power. We use the Shapley value to describe bargaining power and the distribution of the trade surplus in such a bilateral oligopoly. By exploiting strategic externalities among the buyers, bilateral trade quotas can improve the buyers' bargaining positions. In contrast, aggregate trade restrictions on all buyers' trade never improve buyer surplus. Minimum quotas on imports from fringe suppliers can benefit nonaffected buyers, as these enjoy positive externalities. We apply these insights to the E.U. market for natural gas and show that the effects of trade quotas on E.U. gas importers' power can be significant.

Original languageEnglish
Pages (from-to)177-199
Number of pages23
JournalJournal of the European Economic Association
Volume12
Issue number1
DOIs
StatePublished - Feb 2014
Externally publishedYes

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