On Russia-Ukraine gas crisis via Reuters:
Russia accused its former Soviet neighbor of stealing about 15 percent the gas it ships across Ukraine to European states.
“Ukraine has stolen gas not from Russia, but from consumers who have bought the product and paid for it,” Prime Minister Vladimir Putin said in televised remarks late on Tuesday.
Ukraine’s pro-West President Viktor Yushchenko blamed Moscow for the supply disruptions, saying Moscow would continue to close the gas taps to Europe or stop them altogether.
Wait a second… it looks like Putin is the good guy, doing his poor customer countries in the region a favor by pointing out Ukraine’s theft. But wait another second, he didn’t stop at that, as I would have done if for example I had noticed someone stealing from my customer the merchandise he bought from me. No, Mr. Putin goes further with his “good” deeds, he punishes the thief, cutting off gas supplies. Fair enough if only, by doing so, he could have avoided punishing the victims.
Hence, Putin’s claim of working in Gazprom customers’ best interest cannot be faithful as it is doing far more harm then good (if any), but rather something else. Hmm, what would that be? Well, Gazprom is a monopoly on natural gas on the European continent. This makes reducing its output very profitable and, thus, makes inventing reasons to brake any previous settlements (such as bilateral agreements) a political means to achieve new profits for Gazprom.
I don’t understand. A monopoly’s optimal rule is to set its price as a markup over marginal cost, with that markup being a function of the elasticity of demand. At that price, the quantity is read off the demand schedule.
If Gazprom is a monopoly and a lower quantity supplied would increase profits, why would it not supply that quantity in the first place?
I am guessing that it’s because Gazprom is not a typical case of monopoly. It is used by the Russian government as a political tool in getting their way on the international scene. Political decisions involving how much should Gazprom supply to X or to Y customer are not necessarily the optimal for the company (if MC exceeds MR). Current global economic crisis might have put pressure on the political side of Gazprom shareholders to work in favor of company’s costs reduction.