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. A relevant policy question is whether the degree of horizontal integration between NG and LPG providers has an influence on the level of retail prices. Using self-reported retail prices of the largest LPG provider in Chile during years 2013 and 2014, we estimate that the presence of a competing NG network generates an average decrease of LPG retail prices within the range [-4%,-2%]. This result suggests that the degree of horizontal integration between NG and LPG providers should matter, in particular for policy interventions such as merger control by competition authorities and the granting of concessions for deploying NG networks by sectoral regulators.

Automated summary

In developing countries, the entry of Natural Gas (NG) networks may lead to a decrease in the retail prices of Liquefied Petroleum Gas (LPG). The study found that the presence of a competing NG network results in an average decrease in LPG retail prices within the range of -4% to -2%, indicating the importance of horizontal integration between NG and LPG providers in pricing strategies.