Do LPG prices react to the entry of Natural Gas? Implications for Competition Policy

In developing countries, the penetration of Liquefied Petroleum Gas (LPG) is still high, and hence the entry of Natural Gas (NG) networks coexists with the use of LPG by an important fraction of households. Thus, a relevant... [ view full abstract ]

In developing countries, the penetration of Liquefied Petroleum Gas (LPG) is still high, and hence the entry of Natural Gas (NG) networks coexists with the use of LPG by an important fraction of households. Thus, a relevant question is whether the number and degree of horizontal integration among NG and LPG providers influences the level of retail prices. If the answer is yes, then there would be room for regulatory intervention aimed at evaluating the impact of horizontal integration on prices, and at proposing remedies in order to mitigate any potential anticompetitive effect. Using self-reported LPG retail prices for an important number of municipalities in Chile during the years 2013-2014, we estimate that NG entry generates an average decrease of LPG prices within the range 0-6%, depending on the identity of the LPG provider. Interestingly, the LPG provider that had the corporate control over the largest NG network in the country is the only one that did not seem to react to entry.