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Competition as a Complement to Regulation

Richard P. Rozek

Year: 1985
Volume: Volume 6
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol6-No3-6
View Abstract

Abstract:
Competition and regulation are often perceived to be in conflict, because regulation usually evolves in response to a failure of the market system. In the case of public utilities in the United States, the familiar argument is that production scale economies make it cheaper for a single firm to provide essential products or services than for two or more firms to do so. To take advantage of the production efficiencies but avoid the resource allocation problems inherent in monopoly levels of price and output, either assets are publicly owned or a privately owned firm is regulated.' In the first case, the incentive to maximize profits is replaced by the need to maximize political support.' Thus the price charged for output is less than the monopoly price. In the second case, states have created public utility commissions (PUCs) to control both access to the market and the monopolist's price and output decisions.



Elements of Market Power in the Natural Gas Pipeline Industry

Harry G. Broadman

Year: 1986
Volume: Volume 7
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No1-8
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Abstract:
As a result of the distortions that have beset natural gas markets in the wake of partial wellhead deregulation under the Natural Gas Policy Act of 1978 (NGPA)-the most visible problem being the existence of increased prices amid a glut of deliverable supplies-concern has mounted about whether the natural gas pipeline industry will perform in a socially efficient manner in the long run when field prices are completely decontrolled.In addition to transporting natural gas from the field to the city-gate, interstate natural gas pipeline companies have traditionally performed two functions. Granted private carrier status by the Natural Gas Act of 1938 (NGA), they both purchase gas shipments in upstream markets and resell them in downstream markets as well as match up gas producers who have available supply with distribution companies and wholesale end-users (direct industrial consumers and electric utilities) who have unfilled demand. In other words, as private carriers gas pipelines not only provide a gas transmission service but also assume the twin roles of gas merchandiser and broker.



The Diminishing Role of Regulation in the Natural Gas Industry

Charles G. Slalon

Year: 1986
Volume: Volume 7
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No2-1
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Abstract:
The natural gas industry grew to maturity under a system of strong monopoly power of pipelines and local distribution companies (LDCs) and balkanized markets at wellheads and burnertips. Recent developments in the industry, especially phased deregulation of wellhead prices implemented by the Natural Gas Policy Act of 1978 (NGPA) and competition induced by the gas bubble since 1982, have somewhat reduced pipeline monopoly power in some markets. Considerations of economic efficiency and economic justice now require that competitive forces be strengthened further. The FERC's Order 436 was an attempt to do that.



The Competitive Floor to World Oil Prices

M. A. Adelman

Year: 1986
Volume: Volume 7
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No4-1
View Abstract

Abstract:
Years ago, I suggested that there was no current or impending oil shortage. Growing consumption, static U.S. production, and other reasons offered then and now did not imply that prices would rise. That conclusion only made sense if the pressure on reserves was increasing, a situation that would be signaled by rising costs of maintaining and expanding output. There was and is no sign of this.



Priority Service: Market Structure and Competition

Hung-po Chao, Shmuel S. Oren, Stephen A. Smith, and Robert B. Wilson

Year: 1988
Volume: Volume 9
Number: Special Issue 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol9-NoSI2-6
No Abstract



Defending the Price of Oil

Dr. Edith Penrose

Year: 1988
Volume: Volume 9
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol9-No1-2
View Abstract

Abstract:
Potential surpluses of oil have been around for a very long time; as a consequence, the defense of prices has always required continually renewed vigilance. It is true that there have been short periods of temporary scarcity and, from time to time, fears of an imminent long-run scarcity, as in the 1920s in the United States and again today. But for at least 60 years, the oil industry seems to have been more concerned with maintaining prices against the pressure of surpluses. "Competition" was always the scapegoat, for in spite of the strong monopolistic elements in the organization of the industry, gluts were the direct result of the behavior of oil companies as they competed to discover and control crude oil production and markets.



Pricing Policies of an Oil Cartel with Expectation of Substitute Producers

Majid Ahmadian

Year: 1988
Volume: Volume 9
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol9-No1-10
View Abstract

Abstract:
The proposition that the net price in a competitive market and the net marginal revenue in a monopolistic market rise at the rate of interest was first demonstrated by Hotelling (1931) for a non-durable exhaustible resource. However, Levhari and Liviatan (1977) and Fisher (1981) have shown that Hotelling's r-percent rule is not valid when extraction costs rise with cumulative production. This r-percent rule also applies to a perfectly durable resource when the resource is produced in a competitive market. It does not apply in the case of a monopolistic market.



Common Carriage and the Pricing of Electricity Transmission

Chris Doyle and Maria Maher

Year: 1992
Volume: Volume 13
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No3-4
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Abstract:
The electric supply industry in Europe is increasingly under pressure to become more competitive. Deregulation and privatisation in the United Kingdom demonstrate the feasibility of this. Draft directives have already been agreed upon by the European Commission to open access in energy markets. We examine the relationship between generators, transmission networks and consumers within a full information static, short-run framework. We show that open access is desirable if accompanied by common carriage and competition in generation. Common carriage is a necessary but not a sufficient condition for efficient outcomes to emerge. We also discuss the pricing of transmission services under conditions of open access and competition in generation.



Market Structure and the Price of Electricity: An Ex Ante Analysis of the Deregulated Swedish Electricity Market

Bo Andersson and Lars Bergman

Year: 1995
Volume: Volume16
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol16-No2-5
View Abstract

Abstract:
Following new legislation the Swedish electricity market is about to be deregulated. The new system is designed to ensure competition introduction and supply. The main motive for deregulation is to increase competition and thus achieve lower market prices. A possible threat to this outcome is the high degree of concentration on the seller side that characterizes the Swedish electricity market. In this paper we show that given the current structure of firms on the supply side, deregulation is not a sufficient condition for lower equilibrium prices in the electricity market. We use a numerical model to explore the quantitative relation between the Cournot-equilibrium price, the number of firms, and the size distribution of firms in the Swedish electricity market. We compute equilibrium electricity prices and a welfare measure in order to quantify the effect of asymmetric market concentration on competition.



Power Markets and Market Power

David M. Newbery

Year: 1995
Volume: Volume16
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol16-No3-2
View Abstract

Abstract:
Privatization was intended to make the English bulk electricity market sufficiently competitive to avoid the need for regulation, but two generators set the spot price over 90% of the time though they supply less than 60% of total electricity generated. Their market power depends on their share of non-baseload plant, and agreed divestiture here should increase competition. The paper argues that the contract market, which makes entry contestable, will ensure that longrun average prices are kept at the competitive entry level, with increased competition mainly increasing medium-run volatility and short-run economic efficiency.




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