Handbook on the Economics and Theory of the Firm
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Handbook on the Economics and Theory of the Firm

Edited by Michael Dietrich and Jackie Krafft

This unique Handbook explores both the economics of the firm and the theory of the firm, two areas which are traditionally treated separately in the literature. On the one hand, the former refers to the structure, organization and boundaries of the firm, while the latter is devoted to the analysis of behaviours and strategies in particular market contexts. The novel concept underpinning this authoritative volume is that these two areas closely interact, and that a framework must be articulated in order to illustrate how linkages can be created.
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Chapter 37: The Regulated Firm in Liberalized Network Industries

Aad Correlje, John Groenewegen and Jan Jaap Bouma


Aad Correljé, John Groenewegen and Jan Jaap Bouma 37.1 LIBERALIZATION, PRIVATIZATION AND (DE)REGULATION In this chapter we discuss the firm as a ‘public utility’: firms operating in sectors like telecoms, electricity and public transport that have a specific function to fulfil. Firms in such network industries are controlled by the state, because public values are involved. Over the past decades, many countries liberalized network industries like telecoms, energy, public transport and drinking water. The services in these sectors were traditionally provided by vertically integrated public utilities taking care of the production, transmission, distribution and selling in one hierarchical organization. In Europe, Asia and Latin America, these public utilities were publicly owned and controlled. Elsewhere, like in the USA, they were privately owned but regulated and controlled by specific commissions or governmental agencies. Next to reasons of market failure, the argument of public values is also important to understand the control of government over network industries. Those values involve issues of safety, security of supply, acceptable prices for specific types of users, objectives of local and sectoral development, the supply of jobs, and – more recently – sustainability and environmental protection. The provision of drinking water is sometimes considered as being part of human rights. Many of the network industries have been liberalized, deregulated, and firms are often privatized. Liberalization means that the sector is opened up to new entrants, which can compete with the incumbent firm and each other. The idea behind liberalization is to create a competitive market to provide...

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