Will more competition at the retail level of the European natural gas industry necessarily drive down prices for final consumers?

We consider a vertical industry where a dominant upstream producer (or a cartel of producers) sells an homogenous good to retailers who serve the final market. Using an industrial organisation approach, we show that if at an initial stage the final market is supplied by a single incumbent firm holding long-term contracts with the dominant upstream producer, then an excessive entry of competitors on the retail market leads to an increase of the price paid by final consumers. Our model illustrates the existence of a trade-off between alleviating the double marginalisation issue thanks to additional competition at the retail level and limiting the market power of upstream producers on the wholesale market through long-term contracts. Our results still hold if the dominant upstream firm faces a competitive fringe, provided firms of the fringe face substantially higher costs of production. The counter-intuitive outcome of our model could be of particular relevance for the European natural gas industry, in case the recently settled organisation grouping the largest gas exporters was to turn into a cartel of producers.