Strategic Behaviour in Network Industries

Strategic Behaviour in Network Industries

A Multidisciplinary Approach

Ernst ten Heuvelhof, Martin de Jong, Mirjam Kars and Helen Stout

This in-depth book explains how institutional changes such as the privatization and liberalization of network industries, for example transport, energy or telecommunications, can frequently be disappointing. The expected benefits such as lower prices, innovation and better services fail to materialize, often because the number of competitors is low. The authors demonstrate how strategic actor behaviour of one or more of the firms involved can help explain these disappointing results.

Chapter 1: Introduction

Ernst ten Heuvelhof, Martin de Jong, Mirjam Kars and Helen Stout

Subjects: business and management, organisational behaviour, economics and finance, game theory, institutional economics, public sector economics

Extract

INFRASTRUCTURES Infrastructures are the backbone of the economy and of society. In particular the network-based infrastructures (for example energy, water, information and telecommunication infrastructures and transport infrastructures for freight and passengers) provide essential services that are enabling for almost every type of economic and social activity. The annual expenditure of households and enterprises in OECD countries for services delivered over the infrastructures is relatively high, some thousands of euros per year per inhabitant. The annual investments of the infra operators and service providers are correspondingly high. The current changes in the economic structure make the crucial role of the infrastructures even more evident. The infrastructures are crucial as enablers of the present service-oriented economy. Hence, they are often labelled ‘critical’ infrastructures. The economy and society as a whole gain by well-functioning and well-performing infrastructures. This is why anything that hampers the optimal functioning of network-based industries deserves attention. 1.2 CHANGES IN NETWORK-BASED INDUSTRIES Until recently, this world of infrastructures and utility services was a quiet world. Stable public-owned companies delivered the same products and services year in, year out. However, technological developments, liberalization, privatization, commercialization and internationalization have turned this world upside down. The changes in infrastructure-based sectors have been immense. To mention a few examples: ● The telecommunication sector has changed rapidly: until recently, this was a stable sector. Most countries had one vertically integrated provider, in most cases publicly owned, which offered a limited number of services. A few years on, this sector has changed completely. There are far...