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Entry and Welfare Loss in Regulated Industries

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Competition and the Regulation of Utilities

Part of the book series: Topics in Regulatory Economics and Policy Series ((TREP,volume 7))

Abstract

The normative objectives of public utility regulation (“PUR”) are to counteract the inefficiencies of monopoly and to ensure that the regulated products are made available in some broadly equitable fashion. The flaws of PUR include:

1. “Capture” theorists, students of “rent-seeking,” and the economics of collective action all predict that the regulators, in practice, will act to benefit the relatively concentrated interests of the industries that they regulate, at the expense of the larger but more diffuse public interest.1

2. A well-intentioned regulator cannot process the information necessary to ensure efficient performance, especially recognizing the informational asymmetries between it and the firms it regulates.2 One may expect the information problem to be more severe in industries with relatively rapid technological change and product innovation.3

3. Firms may have incentives to diversify and exploit the market power in their regulated markets, with harm to both regulated ratepayers and the performance in the markets the regulated firms enter.4

4. The tax and subsidy schemes inherent in regulatory cost allocation and pricing structures are inevitably inefficient, compared to the ideal “lump-sum” transfers.5

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Authors
  1. Timothy J. Brennan
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Editor information

Editors and Affiliations

  1. Graduate School of Management, Rutgers University, Newark, New Jersey, USA

    Michael A. Crew

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© 1991 Springer Science+Business Media New York

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Brennan, T.J. (1991). Entry and Welfare Loss in Regulated Industries. In: Crew, M.A. (eds) Competition and the Regulation of Utilities. Topics in Regulatory Economics and Policy Series, vol 7. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-4048-9_8

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  • DOI: https://doi.org/10.1007/978-1-4615-4048-9_8

  • Publisher Name: Springer, Boston, MA

  • Print ISBN: 978-1-4613-6811-3

  • Online ISBN: 978-1-4615-4048-9

  • eBook Packages: Springer Book Archive

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