REGULATORY REFORM: LESSONS FOR NATURAL GAS PIPELINES

This article examines regulatory reform and some possible consequences of reform designed to increase the role that competition plays in the interstate natural gas pipeline industry. The analysis first provides a conceptual framework for viewing the “problem of natural monopoly” as a basis for regulation. It summarizes ways in which introducing competition for a market may be possible even if competition within a market is not possible–through competitive auctions, monopolistic competition, or contestability. The analysis then relates briefly to this framework the experiences of three U.S. industries that have undergone substantial reform during recent years–airlines, motor carriers, and railroads. Finally, it compares the natural gas pipeline industry with the others examined and suggests types of regulatory reform that might succeed–and those that might not succeed–in improving resource allocation.