Geographic market delineation the case of internationally traded coal

Sammanfattning: The purpose of this study is to test the hypothesis of the existence of a world market for the international coal industry, and to investigate whether or not the industry has experienced increased market integration over time. The study consists of an introductory part and two self- contained papers where two different methods for market delineation are applied, evaluated and compared. Paper [1] uses a cointegration approach to analyze market integration for internationally traded coal, and investigate whether the industry has experienced increased market integration over time. Both the coking coal and the steam coal market show evidence of global market integration, as demonstrated by the presence of a stable long run cointegrating relationship. This supports the hypothesis of a globally integrated market. The long run price correlation is higher for steam coal than for coking coal, but the short run error correction estimates indicate a faster adjustment towards the long run equilibrium level for coking coal than for steam coal. Thus, the overall conclusion on which of the two markets that is more integrated than the other is indecisive. When analyzing market integration over time it is not possible to confirm cointegration in the 1990s for steam coal, and thus the conclusion of a single economic market cannot be maintained. Regarding coking coal, there are tendencies of increased integration given the faster adjustment to the long run equilibrium level in the 1990s. Paper [2] aims at delineating the relevant economic market for steam coal and coking coal by using shipments data (the so-called Elzinga-Hogarty method), and to test the hypothesis of a single world market for coal. Regarding coking coal the results indicate that the market is essentially global in scope, and also that the market has become more integrated over time. The results for steam coal show that these markets are more regional in scope, and there exist no clear tendencies of increased integration over time. In order to scrutinize the Elzinga-Hogarty method in more detail, some of the criticism towards the method is addressed empirically. The overall conclusion is that the method is not well equipped to detect potential market participation or potential anticompetitive behavior within a defined area (especially when there are large differences in the size of the market participants). Still, the Elzinga-Hogarty method is useful as a first step in market delineation analysis as it contributes to a good understanding of the prevailing product flow patterns. The main conclusion of the study is that the market for internationally trade coal is integrated globally. However, the levels of market integration as well as the development over time differ between the steam coal and the coking coal markets. The results point towards a more integrated market for coking coal than for steam coal. However, this finding does not have to imply that competition in the steam coal market is restrained. The methods applied in this study are useful for delineating economic markets, but in order to detect anticompetitive behaviour complementary information providing a more detailed analysis of the specific industry is needed.