The Liberalization of Infrastructure
- Elgar original reference
Edited by Matthias Finger and Rolf W. Künneke
Chapter 3: A General Framework for Regulation and Liberalization in Network Industries
3 A general framework for regulation and liberalization in network industries1 Christian Jaag and Urs Trinkner INTRODUCTION Traditionally, most network industries used to be dominated by state-owned regulated monopolies. During the past 20 years, governments in many parts of the world have started liberalizing their network industries, for example, telecommunications, postal services, electricity and transport. This liberalization process started in the USA in the late 1970s and in the UK in the early 1980s. Since then, sectors such as telecommunications and air transport have become fully liberalized in the European Union (EU) and are becoming increasingly competitive. The electricity sector, postal services and railways are not yet fully liberalized. In parallel with liberalization, sector-specific regulation in network industries has become a widely discussed topic among academics, policy-makers, industry economists and regulators themselves. The issue of these debates has usually been on whether such regulation is necessary and if so what its optimal design should be. Some argue for complete deregulation (that is, the complete abolishment of sector-specific regulations), whereas others propose re-regulations, that is, the replacement of pre-existing (monopoly) regulations by new regulations aiming at safeguarding service levels and competition. The resulting compromise is often somewhere in between; the liberalization process usually entails the partial replacement and realignment of sector-specific regulatory intervention by the disciplining forces of competition protected by competition law. Consequently, competition law and sector-specific regulation play complementary roles.2 In this chapter, we present a general economic framework to assess regulatory remedies in network industries. Therein, liberalization, or...
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