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Incumbent Vertical Market Power, Experimentation, and Institutional Design in the Deregulating Electricity Industry

31 Pages Posted: 25 Jun 2012 Last revised: 5 Jun 2014

L. Lynne Kiesling

Purdue University - Department of Economics

Date Written: June 3, 2014

Abstract

Incumbent vertical market power in deregulating markets can be anticompetitive, as seen in the current process of retail electricity restructuring. This paper uses the AT&T antitrust case’s Bell Doctrine precedent of “quarantine the monopoly” as a case study in incumbent vertical market power in a regulated industry. It then extends the Bell Doctrine by presenting an experimentation-based theory of competition, and applies this extended framework to analyzing the changing retail electricity industry. The general failure to quarantine the monopoly wires segment and its regulated monopolist from the potentially competitive downstream retail market contributes to the slow pace and lackluster performance of retail electricity markets for residential customers.

Keywords: regulation, electricity, rate-of-return regulation, competition policy, Schumpeter, Kirzner, entrepreneur, innovation, smart grid

JEL Classification: D42, K23, L26, L43, L94, O33

Suggested Citation

Kiesling, L. Lynne, Incumbent Vertical Market Power, Experimentation, and Institutional Design in the Deregulating Electricity Industry (June 3, 2014). Available at SSRN: https://ssrn.com/abstract=2091719 or http://dx.doi.org/10.2139/ssrn.2091719

L. Lynne Kiesling (Contact Author)

Purdue University - Department of Economics ( email )

West Lafayette, IN 47907-1310
United States

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