A Study of Scale Economies and Price Differential of the City Gas Industry in Japan

The purpose of this paper is to prove price differential of the city gas industry in Japan by estimating scale economies. There are three organizational forms in the city gas industry in Japan. In particular, the organizational forms between a firm which purchases natural gas from wholesalers and a firm which provides natural gas transformed into LNG by using its own facility are quite different. They are respectively trying to pursue their efficiency in a competitive manner. However, the results turned out to be quite different. In this paper, I estimate scale economies in two types of suppliers and factor analysis on the price of their suppliers, and then, I consider the influence which the differential of two organizational forms gave to gas price. In conclusion, the affects of scale economy of the firm which purchases natural gas from wholesalers is larger than that of the firm which supplies natural gas transformed into LNG by using its own equipment. In addition, I found that the prices of larger scale utilities were constant or at least not rising. This means that the city gas price is decided under the influence of scale economies. I have also found that price differential will become increasingly larger in the future. If the city gas industry is considered a universal service, we need to reduce this price differential. However, if this industry is considered a local service in a particular district, some utilities would lose in the competition, then stop supplying, and finally leave the market. Hence, we need to make a new policy as a next step after the reform of liberalization since 1995 by considering whether this industry is universal or not.

Graduate School of Commerce and Management, Hitotsubashi University

2011-09

English(eng)

technical report

VoR

15

Working Paper / School of Business Administration, Hitotsubashi University Business School

https://hdl.handle.net/10086/19321