Reinforcing buyer power: Trade quotas and supply diversification in the EU natural gas market

We use the Shapley value to describe the distribution of the trade surplus and market power in a bilateral oligopoly with concentrated domestic buyers and concentrated foreign sellers. With the EU natural gas market in mind, we find that buyers can benefit from bilateral but not from aggregate trade restrictions. Those who invest in supply diversification gain, with other buyers enjoying positive externalities; sellers lose profits and power. Thus we provide a rationale for the current EU support for importers’ investment plans.