Robert A. Ritz

On Welfare Losses Due to Imperfect Competition

Corporate managers and executive compensation in many industries place significant emphasis on measures of firm size, such as sales revenue or market share. Such objectives have an important - yet thus far unquantifed - impact on market performance. With n symmetric firms, equilibrium welfare losses are of order 1/n4, and thus vanish extremely quickly. Welfare losses are less than 5% for many empirically relevant market structures, despite significant firm asymmetry and industry concentration. They can be estimated using only basic information on market shares. These results also apply to oligopsonistic competition (e.g., for retail bank deposits) and strategic forward trading (e.g., in restructured electricity markets).

Price Discrimination and Limits to Arbitrage in Global LNG Markets

Gas prices around the world va’y widely despite being connected by international trade of LNG Some industry observers argue hat major exporters g , Qatar) have acted irrationally by failing to engage in price arbitrage. This is also difficult to reconcile with a perfectly competitive model in which price differences exist solely because of transport costs we show that a model with market power can rationalize observed price differentials and trade flows. We highlight how different features of the LNG market limit the ability and/or incentive of other players to arbitrage, and discuss the potential impact of US LNG exports.

Does the Social Cost of Carbon Matter? Evidence from US Policy

We evaluate a recent US initiative to include the social cost of carbon (SCC) in regulatory decisions. To our knowledge, this paper provides the first systematic analysis of the extent to which applying the SCC has affected national policy. We examine all economically significant federal regulations since 2008 and obtain an unexpected result: putting a value on changes in carbon dioxide emissions does not generally affect the ranking of the preferred policy compared with the status quo. Overall, we find little evidence that using the SCC has mattered for the choice of policy in the United States. This is true even for policies explicitly aimed at reducing carbon dioxide emissions. We offer some possible explanations for the patterns observed in the data.

When is a carbon price floor desirable

The EU carbon price lies well below estimates of the social cost of carbon and “target-consistent” carbon prices needed to deliver ambitious targets such as the 40% reduction target for 2030. In light of this, the UK introduced a carbon price floor (CPF) for its electricity sector in 2013 and the new Dutch Government has recently made a similar commitment, while successive French Governments have called for an EU-wide CPF. This paper analyzes the impacts and design of a power-sector CPF, both at the EU and national level, using a political-economy approach. We find a good case for introducing such a price-based instrument into the EU ETS. We suggest that a CPF should be designed to “top up” the EUA price to €25–30/tCO2, rising annually at 3–5% above inflation, at least until 2030. We argue that the new EU Market Stability Reserve enhances the value of a CPF in terms of delivering climate benefits, and discuss the potential for a regional CPF in North-West Europe. We also review international experience with price floors (and ceilings).

Strategic investment, multimarket interaction and competitive advantage: An application to the natural gas industry

This paper presents a game-theoretic analysis of multimarket competition with strategic capacity investments, motivated by recent developments in international natural gas markets. It studies the competitive implications of heterogeneity in firm structure arising from asset specificity. A single-market focus confers advantage even in the absence of superior value or cost. Lower costs and a sharper organizational focus are self-enforcing in generating competitive advantage. This establishes a novel connection between two of Porter’s “generic strategies”. The model speaks to competition between pipeline gas and liquefied natural gas (LNG) and the global impacts of the Fukushima nuclear accident.

Strategic investment and international spillovers in natural gas markets

This paper presents a game-theoretic analysis of multimarket competition with capacity investments, applied to international gas markets. It identifies a strategic advantage of «focused» pipeline gas producers (e.g., Gazprom) over «diversified» multimarket exporters of liquefied natural gas (e.g., Qatar). Based on this, the paper examines the spillover impacts of the Fukushima nuclear accident onto European gas markets, both in the short- and longer-term. It also discusses Russia’s gas export strategy, especially the 2014 deals with China. More generally, the analysis shows how a less efficient oligopolist can be more profitable, and speaks to policy discussions about «security of supply» in energy markets.