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Abstract

Price Regulation in a Vertically Integrated Natural Gas Industry: The Case of Mexico

The Review of Network Economics

Vol. 4, Issue 1 - March 2005, pp 75 - 92



Author
  Dagobert L. Brito
Department of Economics and Baker Institute, Rice University

Juan Rosellón
Centro de Investigación y Docencia Económicas (CIDE)

E-mail: [email protected]

Abstract
  The Comisión Reguladora de Energía of Mexico has implemented a netback rule for linking the Mexican natural gas price to the Texas natural gas benchmark price in an industry structure characterized by a vertically integrated state-owned monopoly. This paper shows that in an open economy where agents can choose between gas and alternative fuels, and where the density function describing the distribution of agents along the pipeline can have mass points, the netback rule is Pareto optimal.

Keywords: vertical integration, gas, mexico, netback rule, regulation

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