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 4: Recent Trends in Infrastructure-based Sectors

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


● 43 ● ● The importance of the utility service requires universal coverage. In a geographically defined service area, the service should be universally available to a uniform technical standard with sufficient quality for the consumers. Different prices can sometimes be charged to different consumer groups, leading to divergent profitability levels for these various groups. Commercially thinking providers might thus be tempted to reconsider the supply of unprofitable services. The great importance of the utility service for consumers and the consequent desirability for everybody to actually buy the service make it necessary for the service to be affordable for all consumers. For a number of utility services, passing on the full costs would lead to such high tariffs that the sales of the facility would remain below critical levels. This is a reason to support the facility financially from public funds, which makes it possible to charge consumers a lower tariff and brings the facility within the budget of more people (this is called marit good nature of the utility service). For example, many public-transport services are subsidized. Passing on the full costs of building and operating the rail infrastructure would make fares so expensive that few people would use public transport. This is societally undesirable. The merit-good nature of many utility services also causes many of them to have a universal tariff, irrespective of the actual costs incurred to deliver the service to an address. The mail is an example of this. Irrespective of the distance between the addressee and the sender...

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