A Cross-country Comparison
Edited by Jean-Michael Glachant and Dominique Finon
Chapter 4: Strategic Pricing for Network Access: Evidence from Electricity Distribution in England and Wales
4. Strategic pricing for network access: evidence from electricity distribution in England and Wales1 Christoph Riechmann INTRODUCTION Network access is an essential prerequisite for the constitution of competitive retail markets in network industries, especially where networks exhibit characteristics of natural monopoly (electricity and gas in particular). Fears are that network owners exploit their monopoly position either to foreclose downstream retail markets or to extract monopoly rents through network access charges. Diﬀerent regulatory options have been discussed to prevent such behaviour: price regulation aims at limiting the proﬁts of network operators in the network business (partial price-cap approach) or in the network business and in related competitive activities2 (global pricecap approach). Legal unbundling of competitive activities and network operations (in conjunction with price regulation of network activities) aims at breaking joint interests of network operators with their related competitive business segments. This chapter extends a more formal analysis of possible strategic behaviour (Riechmann, 2000) and also explores technical limitations to such possible action due to the inability of incumbent network operators to discriminate between customers supplied by competitors and their own retail business. We outline the institutional framework of electricity retail competition in England and Wales which serves as reference for the following theoretical considerations and empirical investigations. In the third section we brieﬂy review recent literature on the regulation of network access. We then address the incentives for strategic discrimination of network access charges. Next are assessed opportunities and limitations to discrimination of network access charges in...
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