Competition Policy and Merger Analysis in Deregulated and Newly Competitive Industries

Competition Policy and Merger Analysis in Deregulated and Newly Competitive Industries

Edited by Peter C. Carstensen and Susan Beth Farmer

This comprehensive book contains case studies on the evolution of competition policy, with an emphasis on merger policy, for seven major US industries that have experienced substantial deregulation in the past forty years – electricity, natural gas, telecommunications, railroads, airlines, hospitals and banking. Also included is a comparison of the EU’s experience in attempting to bring about competition in the energy, finance, and airline industries.

Chapter 3: Natural Gas Pipelines: Can Merger Enforcement Preserve the Gains from Restructuring?

Diana L. Moss

Subjects: economics and finance, competition policy, industrial organisation


Diana L. Moss1 INTRODUCTION Of the sectors that have undergone major structural reform in the United States, the natural gas pipeline industry is unique in several ways. In comparison to electricity and local telecommunications, the two most transitionally challenged industries, the restructuring experience in natural gas may have more successfully proved the gains of reform in terms of less invasive regulation, workable competition and consumer choice.2 For example, there is evidence of improved market performance resulting from access and a market-oriented regulatory approach; declines in natural gas transportation prices and development of spot markets as well as market hubs and hub services. There is also empirical evidence of market integration that signals more efficient market operation. A number of reasons may account for this experience. First, pipeline markets are probably better characterized as network oligopolies (O’Neill 2005, 113) than monopoly essential facilities, reducing the need for more invasive regulation and improving prospects for competitive reforms. Second, restructuring has operated on an industry that was integrated largely through contract, instead of ownership. Policy makers were therefore not saddled with the troublesome job of vertical unbundling or, alternatively, imposing forced access on vertically integrated network owners. Third, the economic distortions created by wellhead price regulation were arguably the primary impetus for regulatory reform. Pent-up forces perpetuated by years of intervention in the wellhead gas market may therefore have primed the industry for more rapid adjustment once the mechanisms for change were in place. Finally, entry into the critical pipeline network segment...

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