Investment Options and Bargaining Power in the Eurasian Supply Chain for Natural Gas

Franz Hubert & Svetlana Ikonnikova

February 2010

Abstract

We use cooperative game theory to analyze the power structure in the pipeline network for Russian gas. If the assessment is narrowly focussed on the abilities to obstruct flows in the existing system, the main transit countries, Belarus and Ukraine, appear to be strong. Once investment options are accounted for, Russia achieves clear dominance. Competition between transit countries is of little strategic relevance compared to Russia’s direct access to its customers. Comparing our theoretical results with empirical evidence, we find that the Shapley value explains the power of major transit countries better than the core and the nucleolus.

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published: 2011, Journal of Industrial Economics, vol LIX, (1), pp. 85 -116