(solution) Natural gas pipelines are typically contract carriers. Shippers contract for capacity when it is

(solution) Natural gas pipelines are typically contract carriers. Shippers contract for capacity when it is

Natural gas pipelines are typically contract carriers. Shippers contract for capacity when it is built and agree to pay the capacity costs associated with their share of the pipeline whether they use it or not. The costs to a shipper to use its capacity are the energy costs associated with powering the compressors. Explain why you would expect to see active secondary markets where shippers trade capacity and why it is efficient to allow such markets. Can you think of some reasons why the absence of competition changes the incentives of a regulated firm such that regulation might be very undesirable?