THE LAW OF ONE PRICE IN A NETWORK: ARBITRAGE AND PRICE DYNAMICS IN NATURAL GAS CITY GATE MARKETS

In this paper we develop a model of the law of one price in a network where many markets are linked with a structure of paths. We show that arbitrage‐free prices depend on the structure of the network and so do price dynamics. Our estimates indicate that local bypass and open access pipeline transpo...

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Bibliographic Details
Published inJournal of regional science Vol. 36; no. 4; pp. 555 - 570
Main Authors De Vany, Arthur, Walls, W. David
Format Journal Article
LanguageEnglish
Published Oxford, UK Blackwell Publishing Ltd 01.11.1996
Regional Science Research Institute
Blackwell Publishers Inc
Subjects
Arbitrage
Bgi / Prodig
Dynamics
Economic theory
Energy
Geography of industry and energy
Human geography
Market potential
Markets
Mathematical models
Natural gas
Natural gas distribution
Pipelines
Prices
Studies
United States of America
United States > US
Marketing channel
Market regulation
Network
Spatial economy
Model
Price fixing
Market
Pipe-line
Natural gas
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Summary:In this paper we develop a model of the law of one price in a network where many markets are linked with a structure of paths. We show that arbitrage‐free prices depend on the structure of the network and so do price dynamics. Our estimates indicate that local bypass and open access pipeline transportation were instrumental in opening arbitrage paths to natural gas city markets and causing their prices to converge. Spot markets in the city gates, pipeline hubs, and production fields, that are scattered over distant points in the vast pipeline network in the United States, now form a single market.
Bibliography:ark:/67375/WNG-KBHVFQC3-V
The University of California Transportation Center provided financial support to Walls; the Free Enterprise Research Center at Texas A&M University partly supported De Vany's research.
ArticleID:JORS555
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ObjectType-Article-1
SourceType-Scholarly Journals-1
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content type line 23
ISSN:0022-4146
1467-9787
DOI:10.1111/j.1467-9787.1996.tb01118.x