Benefits and Costs of Integration in Transmission/Transportation Networks: An Application to Eastern Australia Gas Markets
Prepared for APA Group
APA Group has asked The Brattle Group to review integration in APA’s pipeline operations in Eastern Australia since the acquisition of Epic Energy in December 2012, and to identify the economic costs and benefits associated with integration.
By combining the ownership of previously separate assets, integration (commonly through mergers and acquisitions) can give rise to benefits from economies of scale and scope, but can also give rise to costs if the integration increases market power. Costs could come from bundling and foreclosure, but we are not aware of any evidence that this is occurring for pipeline transportation in Eastern Australia. Costs could also come from monopoly pricing of pipeline transportation, but APA’s pipeline integration since 2012 described in this report has not increased the risk of monopoly pricing.
