Lynne Kiesling
EcoGeek has a list of green cars being debuted at the Detroit auto show, and it’s longer than you might think, with more manufacturers (US and foreign) than expected.
Archive for January 12th, 2009
Russia and Ukraine natural gas disputes illustrate the bilateral monopoly problem
January 12, 2009Michael Giberson
At the Streetwise Professor, Craig Pirrong writes that the periodic interruptions in natural gas flows from Russia across Ukraine present a “classic bilateral monopoly situation.”
Bottom line–there are no saints involved in this episode. There is a classic bilateral monopoly situation. Each side is using its leverage to try to extract as much from the other as possible. There is a substantial rent to be had, and Ukraine and Russia/Gazprom are using every lever they can to get the lion’s share of that rent.
More:
In essence, Ukraine is using the market power inherent in its control of the pipeline between Russia and Europe in exactly the same way Russia/Gazprom has used the market power inherent in its (government granted) monopoly over the pipeline between Turkmenistan and Europe. And which it also uses, by the way, to stifle competition from other Russian producers of gas.
His prognosis:
This conflict is inherent in the dysfunctional market structure upstream and midstream. State mandated monopolies over transportation in Russia and Ukraine, with no system of open access and common carriage, distort markets. When these monopolies are back to back, rent seeking battles are inevitable.
Absent some regime of open access, or common carriage at regulated rates, the distortions in the Eurasian gas market will persist. The second best alternative is to create additional pipeline routes connecting other sources of gas (Turkmenistan, Kazakhstan) with consumers downstream. Importantly, these additional routes must not be in control of the incumbents–notably Gazprom–so Nord Stream and Blue Stream South Stream don’t help. An additional, non-Gazprom pipeline would create additional competition (though far from anything resembling perfect competition) both for the gas, and for the transport of gas.
This is not likely to happen anytime soon, given the difficult economics of Nabucco, the dynamics of the new Great Game in Central Asia (and Russia’s strong strategic hand in that game, and its ruthlessness in playing it), and the pathetic dithering of the Europeans. Which means that the gas wars will remain as regular a New Years event as the Rose Bowl and hangovers.
Low entry barriers in electric car market
January 12, 2009Lynne Kiesling
Very interesting story in today’s Wall Street Journal about BYD, a Chinese firm manufacturing electric vehicles. One of the most interesting points in this article: despite the global economic downturn, BYD is increasing its operations, first in China and then planned for US and Europe, because entry barriers are lower in the electric vehicle market than in the internal combustion vehicle market.
Mr. Wang’s strategy: capitalizing on the electric car’s low barriers to entry. Few products are as complex to develop and produce as gasoline-powered automobiles, which are assembled with thousands of precisely engineered parts. But electric cars use only basic motors and gearboxes, and have relatively few parts. Aside from perfecting the battery itself, they’re far easier and cheaper to build — and that makes for a level playing field.
“It’s almost hopeless for a latecomer like us to compete with GM and other established auto makers with a century of experience in gasoline engines,” said Mr. Wang in an interview, pacing and juggling calls in BYD’s headquarters on the outskirts of Shenzhen. “With electric vehicles, we’re all at the same starting line.”
BYD has other factors working to their advantage — low labor costs, innovations in battery technology — but the demand for electric vehicles is still not particularly large or particularly intense. The article also discusses the constraint that battery technology presents, and some of the innovations that BYD and others are doing to relax those constraints.
