A modified Cournot model of the natural gas market in the European Union: Mixed‐motives delegation in a politicized environment

With Gazprom gaining prominence as the major supplier of natural gas in the European Union, the European gas market becomes more politicized. We assume that Gazprom's interest as a state monopolist is not only to maximize profit, but also to seek market power, presumably because this contributes to the geopolitical power of Russia at large. We introduce a modeling tool, so‐called strategic delegation games, to analyze the implications of Gazprom's operation in the EU. By way of illustration, we model the case where Gazprom competes against two profit‐maximizing rivals: Algerian Sonatrach and Norwegian Statoil. We prove that if Gazprom serves any of a comprehensive type of nonprofit objectives, the outcome is beneficial for the EU's consumers, as Gazprom's behavior shifts volumes up and brings prices down.