Creating Competition & Mastering Markets' New Entrants, Monopolists, and Regulators in Transforming Public Utilities Across the Atlantic
33 Pages Posted: 26 Aug 2006
Date Written: 19 2003 6,
This paper is on the transformation of network industries or public utilities in Western Europe and the United States (US). A network industry provides a public or basic service by operating a large infrastructure system whose main characteristics are strongly increasing returns to scale, high levels of capital intensity, deployment of long-lasting industrial assets, and of vital importance to the economy (e.g. telecommunication, energy, transportation systems, water distribution, postal services, broadcasting). The objective of this paper is to look at the transformation of utility markets and to investigate whether the (re-)engineering of utility markets has effectively produced new industrial structures and has generated alternative outcomes. And secondly, whether this deliberate process to stir up the competitive dynamic is thwarted by the combination of industrial predation (e.g. legacy systems and installed customer base) and incumbency power (market leadership, closeness to government, cross-subsidisation, information monopoly) favouring only modest and gradual change or by emergent and unexpected radical forces that have surprised both the omniscient market makers and those favouring the status quo. Introducing deregulation and liberalisation and engineering market dynamics in a utility world that is still characterised by partial competition and a persistent quasi-monopoly, is no easy matter. The process of de-monopolisation can be seen as the result of ongoing strategic and tactical interactions among incumbent operators and insurgent market players, tough bargaining between those firms and supervisory regulators, and difficult negotiations at the federal level of Washington and Brussels between the state administrations, their regulators and the transnational institutions. In order to create some form of dynamic rivalry in those "monopolistic" network-based industries, the emergence of new entry/exit and competition needs to be nourished and closely monitored and supervised: the emergence and persistence of competition needs to be engineered. The concept of engineering competition is somewhat ambiguous, since we should be both aware of the shortcomings of designing and managing markets and the limitations on and problems with self-organisation in regulation. Competition is a spontaneous process and is in the domain of human action, while "regulation" is a product of human design and contains instruments and toolboxes to intervene in a dynamic environment, and those two should not be mixed. Hence, despite the popularity of the term engineering competition, "engineering regulation", with a clear and intentional focus on devising an appropriate framework facilitating competition, is probably a better term.
Keywords: competition, regulation, privatisation, public utilities, strategic restructuring
JEL Classification: M, M10, L2, L51
Suggested Citation: Suggested Citation