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Deregulation of Network Industries – Theory and Dutch Experience

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  • Maria Brouwer

Abstract

Public utilities such as electricity and telecommunication industries have experienced large-scale changes in recent years. These industries posses elements of natural monopolies, which until lately prompted governments to regulate these sectors. Many utility companies were also state-owned. New theories and new technologies have ignited processes of privatization and deregulation that reshaped these network industries from monopolies into accessible markets. Entry after deregulation took several forms. Firms either built their own networks or obtained access to incumbent network capacities. Auctions were used to regulate the number of entrants in all those cases where technological considerations curtail the number of competitors such as in mobile telephony. The paper discusses some theories of privatization and (de)regulation. Oligopoly models are used to calculate the effects of deregulation on prices and market structures. The paper argues that (re)regulation is warranted as long as natural monopoly elements feature these industries. This applies to the fixed network in telecommunications and the low and high voltage networks in electricity. Governments can regulate access to network industries by setting interconnection tariffs and granting roaming rights. (Re) regulation is, therefore, warranted in many cases.

Suggested Citation

  • Maria Brouwer, 2001. "Deregulation of Network Industries – Theory and Dutch Experience," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 3-27.
    • Handle: RePEc:bas:econst:y:2001:i:1:p:3-27
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    References listed on IDEAS

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    1. David P. Baron & Robert A. Taggart Jr., 1977. "A Model of Regulation under Uncertainty and a Test of Regulatory Bias," Bell Journal of Economics, The RAND Corporation, vol. 8(1), pages 151-167, Spring.
    2. Leon Courville, 1974. "Regulation and Efficiency in the Electric Utility Industry," Bell Journal of Economics, The RAND Corporation, vol. 5(1), pages 53-74, Spring.
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