Strategic pricing of grid access under partial price-caps — electricity distribution in England and Wales

It is perceived in public debate that monopolistic network operators (who are vertically integrated into competitively organised activities) would raise excessive access charges to derail competition by newcomers. Economic reasoning, however, suggests that the level of access charges is — at least i...

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Bibliographic Details
Published in:Energy economics 2000-04, Vol.22 (2), p.187-207
Main Author: Riechmann, Christoph
Format: Article
Language:English
Subjects:
Applied sciences
Distribution
Economic data
Electric energy
Electric utilities
Electricity
Electricity distribution
Electricity industry
Energy
Energy economics
Energy industry
Energy prices
England
Exact sciences and technology
General, economic and professional studies
Market entry
Market segments
Network access
Price regulation
Price-cap regulation
Pricing
Pricing policies
Regulatory reform
Studies
United Kingdom
Wales
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Summary:It is perceived in public debate that monopolistic network operators (who are vertically integrated into competitively organised activities) would raise excessive access charges to derail competition by newcomers. Economic reasoning, however, suggests that the level of access charges is — at least in a simple setting — irrelevant for the intensity of entry by newcomers. In a setting where access charges are price-cap regulated, theoretical considerations and empirical findings for the case of electricity distribution in England and Wales even suggest that inefficiently high access charges correspond with intense market entry. Efficiency concerns remain, nonetheless. If regulated by a practicable partial price-cap, the network operator may enforce monopolistic access charges in certain market segments. Access charges in other segments may be lowered strategically and may even be cross-subsidised.
ISSN:0140-9883
1873-6181
DOI:10.1016/S0140-9883(99)00038-9