Production and export decisions of State-owned firms are often taken considering their effects on national social welfare, and, therefore, on home consumers’ surplus. Notably, this is the case of many State-owned energy firms based in energy commodities-producing Countries, which, for political reasons, sell domestically at a welfare price, that is, at a subsidized price. This is what occurs, for instance, in Countries like Algeria, Russia, Venezuela and Iran. Actually, not all State-owned energy firms have a consistent domestic market to serve, for reasons related to their level of development, their climate or the size of their population. Interestingly, the lack of an internal market may have a relevant effect on production and export decisions of State-owned welfare-maximizing energy firms. This paper aims at investigating these effects, describing a model in which a competitive (and, therefore, profitable) market is served by two foreing firms, only one of the two having a domestic demand to satisfy. We model this situation considering a two-stage game: in the first stage, the firm without an internal market chooses its level of production capacity and then, in the second, both firms choose their level of production destined to export. Costs to be sustained are those relative to extraction and transport to the importing Country.
The Effects of a Domestic Market on Export Decisions for a State-Owned Company
DORIGONI, SUSANNA;MAZZEI, LUIGI;PONTONI, FEDERICO BRUNO
2009
Abstract
Production and export decisions of State-owned firms are often taken considering their effects on national social welfare, and, therefore, on home consumers’ surplus. Notably, this is the case of many State-owned energy firms based in energy commodities-producing Countries, which, for political reasons, sell domestically at a welfare price, that is, at a subsidized price. This is what occurs, for instance, in Countries like Algeria, Russia, Venezuela and Iran. Actually, not all State-owned energy firms have a consistent domestic market to serve, for reasons related to their level of development, their climate or the size of their population. Interestingly, the lack of an internal market may have a relevant effect on production and export decisions of State-owned welfare-maximizing energy firms. This paper aims at investigating these effects, describing a model in which a competitive (and, therefore, profitable) market is served by two foreing firms, only one of the two having a domestic demand to satisfy. We model this situation considering a two-stage game: in the first stage, the firm without an internal market chooses its level of production capacity and then, in the second, both firms choose their level of production destined to export. Costs to be sustained are those relative to extraction and transport to the importing Country.
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