The Relationship Between Industrial Sales Prices and Concentration of Interstate Natural Gas Pipelines

Authors:
John R. Morris
Working Paper:
168

Many economic studies find market concentration positively related to profits. The findings may be explained either by oligopoly behavior or by greater efficiency of firms with large market shares. Although both explanations imply that concentration and profits will be positively related, they differ in their implications for the relationship between concentration and price. This paper presents observable implications from a standard oligopoly model. Data from natural gas pipelines are consistent with the implications including the implication that industrial sales prices of interstate natural gas pipelines are positively related to market concentration.