The border effects and choices of competitive strategies of the provincial natural gas markets in China

Abstract

The provincial government competition is regarded as a key variable in China's market-oriented reform to explore whether natural gas market will be integrated from segmentation. A spatial price equilibrium model with two markets is advanced to theoretically explain the competitive policy tools of environmental regulation and pipelines investment will increase resource rent but decrease congestion rent, and lead to more segmentation and integration of gas market, respectively. However, it is difficult to quantify the price differences resulted from these two rents on gas trade network. Therefore, the price difference is selected as the dependent variable of the border effect model, and a model-based analytical framework is put forward to empirically study the mechanism of the border effects from provincial competition. Results indicate that: (i) Natural gas physical network builds a trade network for provincial competition, and government uses policy tools to redistribute these two rents to change the spatial allocation relationships of natural gas on the trade network. (ii) Market segmentation by these two rents generates the border effects which display heterogeneity on gas trade network after provincial competitions in different ways. (iii) Once the margins of the two rents are changed by a node in the node-centered niche gas market when gas trade network evolves from a small world to free-world, the government will self-adaptively migrate its competitive strategies to maximize its marginal revenue. Consequently, the migration helps the niche market and the whole market to be integrated from segmentation. Some suggestions are given for China's natural gas market integration.