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Competition as a Complement to Regulation

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  • Richard P. Rozek

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.

Suggested Citation

  • Richard P. Rozek, 1985. "Competition as a Complement to Regulation," The Energy Journal, , vol. 6(3), pages 79-90, July.
    • Handle: RePEc:sae:enejou:v:6:y:1985:i:3:p:79-90
    DOI: 10.5547/ISSN0195-6574-EJ-Vol6-No3-6
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    References listed on IDEAS

    as
    1. Peltzman, Sam, 1971. "Pricing in Public and Private Enterprises: Electric Utilities in the United States," Journal of Law and Economics, University of Chicago Press, vol. 14(1), pages 109-147, April.
    2. Jarrell, Gregg A, 1978. "The Demand for State Regulation of the Electric Utility Industry," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 269-295, October.
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