Ex-ante analysis of welfare change for a liberalization of the natural gas market

This paper investigates the potential impact of divestiture of the natural gas market monopoly in terms of supply quantity, price, and social welfare. The empirical application is focused on the case of the Korean natural gas market. The simulation is performed with different behavioral assumptions after divestiture, such as the current regulatory scheme, marginal cost (MC) pricing, and Cournot competition. The characteristic feature of the Korean natural gas market is its heavy dependence upon liquefied natural gas, which is reflected in the estimation of the cost structure. The empirical results signify the importance of national or social guidelines to secure consumer surplus and social welfare. (C) 2004 Elsevier B.V. All rights reserved.