Price Elasticities of Natural Gas Demand in France and West Germany

Abstract

This article analyzes the own-price elasticities of natural gas and cross-price elasticities between gas and other fuels in France and West Germany. A model with constant substitution elasticities would not give enough information to study interfuel competition. Therefore we adopted a model based on translog functions, which has few restrictions on measuring elasticities of energy demand.

The results show that the absolute values of the elasticities are generally higher for West Germany than for France. A possible explanation is that in West Germany consumers change their fuel demand faster with fluctuations in relative prices of the different energy sources, in part because of the wider adaption of multi-firing equipment.

On the whole our results show that energy demand is rather inelastic, a result in accord with most recent analyses.

Keywords

Price elasticity of natural gas demand France Germany Translog function

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