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Criteria for the choice of a benchmark price in cases concerning monopolistic pricing

Energy Commodity Exchanges in Russia: Protection Against Shocks or Monopolies?

The development of commodity exchanges is promoted as one of main competition policy directions in Russian energy markets. Exchange trade has a number of procompetitive effects based on reduction of market transaction costs, as well as on prevention of price manipulations. Those effects in their turn contribute to less painful coping with economic shocks and imbalances, which acquires a special importance amid crisis circumstances of 2020 and 2022. However, exchange trade is connected with its own risks and constraints, in particular under the shortage of liquidity, excessive market concentration or abusive practices supported by a weak regulation. This paper contains the empirical analysis of the dependence between structural and pricing indicators in the markets for natural gas and diesel fuel on Saint-Petersburg International Mercantile Exchange. It is discovered that the excessive concentration in natural gas markets negatively affects price stability and market liquidity – development of this trading segment requires more active involvement of independent suppliers. At the same time, this involvement should be realized not by directive measures but by additional opportunities of exchange trade. This dependence is more complicated in markets for diesel fuel – it is necessary to continue the policy of supporting the volume of liquidity while increasing the attractiveness of the trading conditions for different groups of market participants. As such, there should be different policies to promote commodity exchanges developments in different markets, and those policies may change follow market evolution. At the same time, discretionary anti-crisis measures should be avoided, if they increase uncertainty on commodity exchanges and lower incentives for their development. Read more...

Validity of Regulation of Airport Services Fees and Tariffs

The article examines the problem of the validity of regulation of airport services’ fees and tariffs. The study is relevant amid criticism of the need for regulation in the context of commercialization of the industry given the disputes over natural monopoly’ status of airports, potential competition between airports and the viability of alternative transaction governance mechanisms. The objective of the research is to analyze possible justifications for the necessity of airport services regulation and to reveal limitations of each of justifications. The analysis is carried out within the framework of two approaches: the natural monopoly model of the theory of industry organization and a comparative analysis of discrete structural alternatives from the new institutional economic theory. The following results were obtained. Firstly, the research shows that the necessity of regulation within the framework of these approaches is justified by the presence of two risks – the risk of abuse of a dominant position and the risk of expropriation of investments made by consumers of airport services. Secondly, concerning the limitations of the justifications, the article systematizes the factors contributing to the strengthening or weakening of the market power of airports. Thirdly, the research identifies the characteristics of airports that are subject to examination when examining the need of for regulation. Fourth, it is demonstrated that the level of risk of expropriation of assets varies depending on the scale of the airport’s activities and the role of the airport in the route networks of airlines. Thus, the paper concludes that within the framework of each of the approaches considered, the decision to introduce regulation of services at airports should be made not for the industry as a whole, but for individual airports, and shows the possible risks of a selective approach to regulating services at airports (the expansion of the regulator’s discretion, the increase in the regulator’s costs due to the need for analysis for the airports under consideration, corruption risks), which must be taken into account when designing relevant regulations if a decision is made to implement the proposed approach to regulation. Read more...