Regulation vs. Competition in network industries Some lessons from the developing countries experience. Antonio Estache July 2008. Overview. Some stylized facts Some theory tainted by facts Some case studies Some lessons Note: builds on joint work with Claude Crampes (Toulouse).
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Regulation vs. Competition in network industriesSome lessons from the developing countries experience
DRIVING FORCE FOR REFORM!
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Search for fiscal benefits
Improved Access and Affordability ?
3 drivers with interest to both regulation and competition agencies
Form and extent of private involvement
Market structure and competition
For segments of industry potentially competitive antitrust
Main differences in focus between regulation and competition agencies …The two types of agencies tend to focus on industries with different technologies
For segments of industry potentially non competitive regulation
Often there is a hierarchy and political and legalistic competition agencies prevail over (less political and « economistic » regulatory agencies
Competition agency (or public authority performing that role)
Firm vs regulatory agency
Firm vs firm
¿back to basics….why is it again that we worry about regulating monopolies???
Many competition agencies are revealing a bias in favor of processes and structural solutions…
=> questioning of some of the restructuring processes of the 1990s
Most regulators tended to favor behavior and technical assessments (but this is changing…)
=> questioning some of the changes in market structure taking place since reforms (mergers, alliances,….)
Antitrust focus on:
Market share and Herfindhal
abuse of dominant position
Agreement and restrictive practices
Subsidies levels and other state aid
Margins, cost of capital and Lerner Index
Incentive to invest
Accounting information (cost allocation, regulatory accounting…)
Of common interest to regulatory and competition agencies
"essential facility": access necessary to allow competition
If vertical unbundling, simple natural monopoly problem
If maintain vertical integration, suspicions of favoritism
So need information and access tariffs
Major drama….most reformed railways have faced the problem in Latin America for instance
So how did countries deal with it???
Legalistic-political vs economic solutions
Common issue in developing countries: access prices and rules
Political solutions to access pricing
Economic (normative) view of access tariff
(more common in regulatory agencies)