DID OPEN ACCESS INTEGRATE NATURAL-GAS MARKETS - AN ARBITRAGE COST APPROACH

Several studies, using analyses that measure the correlation between p rices in various markets, have argued that deregulation of natural gas pipeline contracts has reduced the transaction costs between natural gas markets. Correlations approaches, however, have potentially seriou s problems. Given these problems, this article estimates transactions costs directly. Deregulation is found to have lowered transactions cos ts to and from the Louisiana, Oklahoma, and Texas regions, but increas ed transactions costs from the Rocky Mountain area. Deregulation of pi peline contracts, by lowering the cost of using the market and therefo re increasing demand for pipeline capacity, may therefore have differe ntial impacts upon transactions costs between markets. This study impl ies that the transactions cost approach may be able to overcome severa l difficulties inherent in the correlations approach.