Incumbent Vertical Market Power, Experimentation, and Institutional Design in the Deregulating Electricity Industry
31 Pages Posted: 25 Jun 2012 Last revised: 5 Jun 2014
Date Written: June 3, 2014
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: Suggested Citation