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Competition for-the-market

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This presentation by Ecuador was made during the discussion “Competition for-the-market” held at the 18th meeting of the OECD Global Forum on Competition on 6 December 2019. More papers and presentations on the topic can be found at oe.cd/cmkt.

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Competition for-the-market

  1. 1. LIQUEFIED PETROLEUM GAS MARKET REGULATION IN ECUADOR SUPERINTENDENCY FOR MARKET POWER CONTROL Patricio Pozo Vintimilla Pablo Carrasco Torrontegui Paris – 6 december 2019
  2. 2. COMPETITION POLICY Level of government intervention in the market Increase of competitive pressure (New firms) Increase of consumer welfare OPTIMAL REGULATION
  3. 3. Natural Monopoly: Crossroads Pro Monopoly ? Allow the monopoly to maximize its profits by producing at the monopoly level. It results in a deadweight loss. Equilibrium Require that the monopoly establishes its price where the average cost curve intersects with the demand curve. This transfers part of the monopoly surplus to consumers, which increases the social surplus or reduces the loss of deadweight. Subsidize Production Require that the monopoly set its price where the marginal cost curve intersects with the demand curve. This eliminates the loss of deadweight but causes the income to no longer cover the costs; where tax money is used to subsidize production.
  4. 4. What is the Social Cost?
  5. 5. LPG is a strategic sector and the State reserves the exclusivity over its regulation and administration LPG subsidy reached USD 780 million in 2018, and forecast USD 764 million for 2019 Since 1992, the Ecuadorian State subsidizes around 80% of the value of domestic use of LPG 3 2 1 LIQUEFIED PETROLEUM GAS (LPG) MARKET ECUADOR 5 4 The 85% of the LPG is consumed in Ecuador is imported The upstream market is exclusive for the Ecuadorian State through a public enterprise Source: Petroecuador EP - 2019S
  6. 6. LPG IMPORTS VS TOTAL DERIVATIVE IMPORTS 10848 10086 10443 11143 10613 56172 47342 48994 52746 50903 2015 2016 2017 2018 2019 THOUSANDSOFBARRELS YEARS GLP Imports Total Derivative Imports 19,3% 21,30% 21,31% 21,13% 20,85% LPG Source: Petroecuador EP - 2019S
  7. 7. LPG: Private Concession Pros - Ineficient public enterprises: “Ferrocarriles Ecuador” - USD 25 million losses in 2017 - Invest in new infrastructure and qualified personnel Cons - Process of concession is long and complex - What will happen to subsidies?
  8. 8. CHALLENGE – LPG COMPETITION POLICY LPG market regulation is wide and complex Optimal Regulation “New” tools: Behavioral economics and game theory Increase the local production of LPG
  9. 9. Thank you More information: (593) 2 3956-010 ext. 1257 Av. de los Shyris N44-93 y Río Coca, Building “Ocaña” www.scpm.gob.ec

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