TY - JOUR
T1 - Effect of floating pricing policy
T2 - An application of system dynamics on oil market after liberalization
AU - Wu, Jung Hua
AU - Huang, Yi Lung
AU - Liu, Chang Chen
N1 - Funding Information:
This work supported by National Science Council of Executive Yuan of Taiwan under Grant No. 97WFA0901213 . The authors would like to thank their colleagues for their assistance and comments with this paper.
PY - 2011/7
Y1 - 2011/7
N2 - Upon the implementation of the floating price mechanism, Taiwan's gasoline and diesel prices returned to market mechanism, which terminated the phenomenon of the public paying for the losses of the state-owned oil company-Chinese Petroleum Corporation, Taiwan (CPC). Furthermore, the relatively low production costs of the privately owned Formosa Petrochemical Corporation (FPCC) disclosed the pricing mechanism of CPC, which inspired FPCC to adopt pricing strategy in order to increase the market share. This study aims to establish a system dynamics model to analyze the effects of the floating price mechanism on Taiwan's gasoline and diesel markets. This Model is divided into four sub-systems. The model of this study passed several validation tests, and hence, is able to provide a "virtual laboratory" for policy-makers to conduct simulation and scenario analysis. The simulation results indicate (a) feedback mechanism of expected revenues and pricing strategy could efficiently simulate the FPCC pricing mechanism, (b) price competition strategy could increase FPCC revenues, although the effect on market share is not remarkable, and (c) FPCC has a higher gas-station growth rate. Scenario analyses found (a) lowering oil security stockpile would not change FPCC's pricing strategy and (b) FPCC prefers to follow CPC pricing when it has more gas stations.
AB - Upon the implementation of the floating price mechanism, Taiwan's gasoline and diesel prices returned to market mechanism, which terminated the phenomenon of the public paying for the losses of the state-owned oil company-Chinese Petroleum Corporation, Taiwan (CPC). Furthermore, the relatively low production costs of the privately owned Formosa Petrochemical Corporation (FPCC) disclosed the pricing mechanism of CPC, which inspired FPCC to adopt pricing strategy in order to increase the market share. This study aims to establish a system dynamics model to analyze the effects of the floating price mechanism on Taiwan's gasoline and diesel markets. This Model is divided into four sub-systems. The model of this study passed several validation tests, and hence, is able to provide a "virtual laboratory" for policy-makers to conduct simulation and scenario analysis. The simulation results indicate (a) feedback mechanism of expected revenues and pricing strategy could efficiently simulate the FPCC pricing mechanism, (b) price competition strategy could increase FPCC revenues, although the effect on market share is not remarkable, and (c) FPCC has a higher gas-station growth rate. Scenario analyses found (a) lowering oil security stockpile would not change FPCC's pricing strategy and (b) FPCC prefers to follow CPC pricing when it has more gas stations.
UR - http://www.scopus.com/inward/record.url?scp=79957632116&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=79957632116&partnerID=8YFLogxK
U2 - 10.1016/j.enpol.2011.04.039
DO - 10.1016/j.enpol.2011.04.039
M3 - Article
AN - SCOPUS:79957632116
SN - 0301-4215
VL - 39
SP - 4235
EP - 4252
JO - Energy Policy
JF - Energy Policy
IS - 7
ER -