Incumbent vertical market power, experimentation, and institutional design in the deregulating electricity industry

Lynne Kiesling*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

Vertical market power has been an essential characteristic of the regulated electricity industry for the past century. A vertically integrated, regulated utility has complete downstream market power; this vertical monopoly power is subsumed within the business model because regulation erects legal entry barriers and regulated electric utilities have been vertically integrated. Incumbent vertical market power in deregulating markets can be anticompetitive, as seen in the current process of retail electricity restructuring. The incumbent default-service contract violates the Bell Doctrine's policy recommendation to quarantine the monopoly when a failure to exit a downstream market has anticompetitive effects. An entrepreneurial theory of competition based on experimentation reinforces that recommendation. The general failure to quarantine the monopoly wires segment and its regulated monopolist from the potentially competitive downstream retail market contributes to the slow pace and boring performance of retail electricity markets for residential customers.

Original languageEnglish (US)
Pages (from-to)239-264
Number of pages26
JournalIndependent Review
Volume19
Issue number2
StatePublished - Sep 1 2014

ASJC Scopus subject areas

  • Geography, Planning and Development
  • Earth-Surface Processes

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