This study analyzes the effects of the oligopolistic competition among refiners after the liberalization of the petroleum industry.
The problems of the various governmental regulations are studied to suggest more effective way for the liberalization and rationalization of the industry. The governmental regulations represented by the price and profit regulations on the industry-wide basis have increased the inefficiency of the petroleum industry.
The major problems are summarized as follows.
- To increase the externality by the zero-sum phenomenon
- To decrease the efficiency of the relative price structure among the petroleum products
- To decrease the incentive to increase the productivity of the petroleum business.
The deregulations of the regulated industry raise more problems than the regulations because of the increasing uncertainty. To forecast the results of the deregulations of the petroleum industry, this study constructs the competition model among the refiners. The model uses the price conjecture as the strategic variable of each refiner for estimating the reaction prices of the other refiners to one refiner. And the model uses market share allocation function to specify the character of the petroleum products markets. The upper bound of the price of each petroleum product is given at the laid-down cost of the consumers' import from the international petroleum products markets.
The major findings in analyzing the model are summarized as follows.
Case 1 : When the market share of each product is sensitive to the relative prices among the refineries, the market situation varies with the price conjecture of each refinery.
- When each refinery uses the Nash strategy, the price equilibrium is found at the marginal cost of each product.
- When each refinery uses the collusive price conjecture, the price equilibrium is found at the upper bound of the price of each product.
- When each refinery uses the quasi-Stackelberg strategy, the price equlibrium is not always found.
Case 2 : When the market share of each product is not sensitive to the relative prices among the refineries, the market situation does not vary with the price conjecture of each refinery.
The results of this study show that the policy of decreasing the sensitity of the domestic petroleum products markets to the price should be considered for alleviating the excessive competition among the refiners. And the liberalization of the imports of the petroleum products should be considered for the indirect control of the domestic prices of the petroleum products.