BAKU, Azerbaijan, Dec.6. Setting a price cap may weaken incentives to compete in the wholesale gas market, Trend reports Dec.6 with reference to the Oxford Institute for Energy Studies (OIES).
“Utilities may be tempted to simply buy at the price cap rather than shop around for cheaper gas, particularly if they sell gas to their customers on a pass-through basis. A price cap could undermine competition in a similar way to informal price fixing cartels. Price fixing is against EU law as it undermines competition and harms consumers. However, price fixing does not have to be in the form of explicit agreements to set an agreed market price. Instead, tacit collusion relies on an informal understanding that suppliers will sell at a given price, by, for example, following the pricing of a lead company,” reads the OIES report.
OIES notes that a price cap would function in the same way as suppliers exchanging information about their proposed selling prices or following the pricing of a lead company.
“All suppliers would know that the acceptable price in the market was the price cap. In a tight supply market, such as the one that currently exists, there would be no need to sell gas at a lower price as suppliers will know there is plenty of demand at the price cap level. Therefore, it would make sense for suppliers to maximise their profits by selling at the price cap, rather than compete. This paper is not suggesting that suppliers would act illegally, but the price cap would reduce ‘strategic uncertainty’ for suppliers by enabling exchange of pricing information. This could result in gas prices falling less quickly than they otherwise would as additional supplies become available. The Commission explicitly recognises this problem in the November proposals and requires that ‘ACER and competition authorities should observe the gas and energy derivatives markets particularly carefully during the activation of the market correction mechanism.’ The price cap can be suspended if it ‘prevents market-based intra-EU flows of gas according to ACER monitoring data.”
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