Regulation & competition

The module provides you with a grounding in the economic analysis that underpins competition policy and regulatory policy towards network utilities.

Likely topics: 

• benefits of the competitive market system. Monopoly welfare losses. Sources of monopoly. Natural monopoly. Williamson trade-off. X‐inefficiency.

• market structure and market definition.

• nationalisation as traditional solution. Problems with public ownership. Privatisation reasons, benefits, and experience. Alternative forms of liberalisation. Competition policy.

• brief history of competition policy. Competition policy in relation to cartels, anticompetitive behaviour, horizontal mergers, vertical mergers approach, other concerns.

• incentives under regulated monopoly: a) efficiency b) investment. The regulators incentives a) capture b) opportunism. Costs and effectiveness of different approaches.

• implications for the design of systems. Fair rate of return, rpi‐x and other forms of regulation. Price discrimination in regulated industries.

• operating and capital expenditure costs in regulation. Theory of benchmark competition. Benchmark and the case of yardstick competition in practice.

• role of cost of capital in setting price controls. Weighted average cost of capital. Risk and return. The capm. Examples of cost of capital in practice.