Competition in Infrastructure Markets

Approaches to Competition

Core References

Merger Policy for Small and Micro Jurisdictions
University of Haifa Faculty of Law, 2012
Michal S. Gal

In small economies, merger regulation can prevent anti-competitive mergers that create long-term effects on the economy that market forces do not correct without intervention. But erroneous merger decisions by regulators can be costly, including denying scale economies and commercial sustainability, as can be the administrative burdens. This paper provides guidance on factors that should be considered in merger policy for small economies, and suggests tools for resolving the policy dilemma.

Competition Policy for Small Market Economies
Cambridge, MA: Harvard University Press, 2003, Chapter 4.
Gal, Michal S.

Explains regulation of monopolies in a small economy context. Defines monopoly and describes approaches to regulating a pure monopoly (a monopoly that does not also compete against other firms) and to regulating a monopoly that competes with downstream rivals. Considers the viability of these downstream rivals.

Imagine: Pro-Poor(er) Competition Law
OECD Global Forum on Competition, 2013
Eleanor Fox

There are various other policies that need to work in conjunction with competition policy for effective poverty reduction. It is important to test the reach of competition in developing countries. State restraints and privileges to vested interests are often so pervasive that they leave almost no space for competition to work and block all channels for economic opportunity.  A pro-poorer, pro-outsider competition law must be guided by the principle of free and open competition without privilege or favor, cover SOEs, reach state officials complicit in anticompetitive conspiracies including bid rigging, allow only the narrowest state action defense, discourage exclusionary practices that block opportunity and harm the market, and emphasize simple rules that do not require significant legal and consulting resources.

Competition in Network Industries – Where and How to Introduce It
Note no. 104 in Public Policy for the Private Sector. Washington, D.C.: World Bank Group, 1997.
Klein, Michael, and Philip Gray

Explains concepts of competition for the market, competition over existing networks, and competition among networks with practical examples. Describes various options for using competition in these sectors, including franchising, open access, pooling, and timetabling. Explains that how network competition is introduced and how effectively and easily it is implemented will vary from one network industry to another. General rules for deciding where and how to introduce competition are discussed.

Restructuring Public Utilities for Competition
Washington, D.C, 2001.
OECD

Provides a systematic review of alternative approaches to promoting competition in public utilities. First discusses the relationship between the market structure of these industries and the likely emergence of competition and emphasizes the problem of access to the natural monopoly segment. Then outlines the pros and cons of various policies that address this issue. Surveys some countries’ experiences in restructuring their public utility sectors.

Sectoral References

ELECTRICITY

The Arguments For and Against Ownership Unbundling of Energy Transmission Networks
ESRC Electricity Policy Research Group, University of Cambridge, 2007.
Pollitt, Michael

Examines models of transmission ownership. Identifies costs and benefits of various approaches using case studies, empirical evidence, and guidance from theoretical models.

Competition in Electricity Markets
Washington, D.C.: International Energy Agency, 2001.
OECD/IEA

Describes the reforms implemented in OECD countries aimed at developing competition in the electricity supply industry and discusses the issue of designing the regulatory framework that would enhance competition. Assesses the emerging model of electricity supply reform and evaluates its relative efficiency. Considers the challenge for electricity market reform and the future outlook for reform.

Electricity Market Design and Creation in Asia Pacific
World Energy Council

Examines electricity market reform in the Asia Pacific. Considers objectives of reforms and issues of customer choice, stranded assets, attracting investment, maximizing asset value, universal access agreements, integration of the grid, and debt. Describes market design options, including competition to build versus competition to operate generating plants.

GAS

Regulatory Reform: European Gas
Washington, D.C.: International Energy Agency, 2000.
OECD/IEA

Considers the type of regulatory reform approach that is best suited for developing effective competition and increased trade and liquidity in European gas markets. Discusses the current institutional system and makes a case for a deep reform of this system. States that reform should take security of supply as a key issue for this constitutes an important feature of the European gas industry. Assesses the situation and outlook for natural gas demand and supply in Europe.

TELECOMMUNICATIONS

Analyzing Telecommunications Market Competition: Foundations for Best Practices
University of Florida, Department of Economics, PURC Working Paper, 2009.
Hauge, Janice and Mark Jamison

Explains how to identify market boundaries and measure the intensity of competition, with particular attention to telecommunications in developing countries.

ICT Regulation Toolkit
Washington, D.C.: infoDev and the International Telecommunications Union, 2007, Module 2.

Explains how to identify barriers to entry, define market power and market dominance, and identify essential facilities. Explains remedies for anticompetitive conduct, such as abuse of dominance, restricting access to essential facilities, and engaging in cross-subsidization, predatory pricing, and price squeezes.

What the Transformation of Telecom Markets Means for Regulation
Note no. 121 in Public Policy for the Private Sector. Washington, D.C.: World Bank Group, 1997.
Smith, Peter

Explains that regulators need to set the rules regarding entry (if there are to be such rules), allocate licenses through bidding mechanisms, resolve network interconnection issues, authorize rate rebalancing to better align prices with underlying costs, and better target subsidies and administer them in a way that does not advantage certain operators. State that in many cases, competition through the sale of property rights (such as radio spectrum) can eliminate the need for regulation, and the market can be regulated in a way more in line with antitrust regulation.

TRANSPORTATION

Liberalization of the Philippine international air transport industry: que pasó? Competition policy is an essential factor for successful liberalization of the airline industry in Philippines
Paper provided by Philippine Institute for Development Studies (PIDS), Philippines , 2001.
Austria, M.S.

Analyzes the liberalization and deregulation policy for the international air transport industry in the Philippines. Examines the effects of these policies on competition and market structure, and identifies areas where reforms are needed. Emphasizes the importance of the policy and recommends that competition policy should focus on, among others: (1) market access; (2) access to inputs; and (3) mergers and acquisitions.

Africa Infrastructure Country Diagnostic: Stuck in Traffic: Urban Transport in Africa
Working Paper number 44980, World Bank, Washington, D.C., 2008.
World Bank and Sub-Saharan Africa Transportation Project

Summarizes recent research on urban transport in 14 large African cities. Provides a comprehensive overview of the state of urban transport in Africa, with a view to drawing out the main challenges facing the sector and illustrating the different ways in which these have been addressed.

Port Reform Toolkit, 2nd Edition
Public-Private Infrastructure Advisory Facility, World Bank.
World Bank Transport Group

Provides guidance for undertaking sustainable and well-considered reforms of public institutions that provide, direct, and regulate port services in developing countries.

WATER

Independent Water and Sanitation Providers in African Cities: Full Report of a Ten-Country Study
UNDP-World Bank Water and Sanitation Program. Washington, D.C., World Bank, April 2000.
Collignon, Bernard, and Marc Vezina

Examines role of small and independent water providers (vendors, water truckers and network providers) in providing water to the urban poor in Africa. States that small-scale providers respond to market niches and meet the needs of both the poor and other unserved communities. Explains how such services are provided and funded; the relationships between small-scale providers, local authorities, and larger-scale water providers; and policy issues.

Competition in Water and Sanitation
Note no. 165 in Public Policy for the Private Sector. Washington, D.C.: World Bank Group, December 1998.
Solo, T. M.

Explains that efficient, large-scale, monopolistic companies may be the best alternative in Europe and the United States, but it is hard to replicate such efficiencies in the utility companies of developing countries. States that small-scale operators tend to be customer-driven, financially viable, and ready to apply innovative technologies and marketing methods. They also provide appropriate solutions in appropriate places, assume all investment risks, reach the poor, charge market prices, cover costs, and respect willingness to pay.

Improving Water Services through Competition
Note no. 164 in Public Policy for the Private Sector. Washington, D.C.: World Bank Group, December 1998.
Webb, M., and Ehrhardt, D.

Describes four means of introducing product market competition: competing networks, private supply, retail competition, and common carriage competition. Explains that to promote competition, governments may have to develop an efficient bulk supply or network access regime. Concludes that the most important part of such a regime is the price of bulk supply or network access. Considers differences in water quality and how they affect common carriage arrangements. Concludes that the case for common carriage competition in water is less compelling than in other industries.

Other

The Economics of Urban Water Systems
in Thirsting for Efficiency, edited by Mary M. Shirley. Washington, D.C.: The World Bank, 2002, pp.43-63.
Noll, Roger G.

Examines prospects for reform in developing countries and conditions that lead to reform.

 

Competition for Existing Consumers VS. Competition for New Consumers

Core References

Competition in Network Industries – Where and How to Introduce It
Note no. 104 in Public Policy for the Private Sector. Washington, D.C.: World Bank Group, 1997.
Klein, Michael, and Philip Gray

Explains concepts of competition for the market, competition over existing networks, and competition among networks with practical examples. “Open access occurs when allowing competition in one segment of the industry requires ensuring access to the remaining natural monopoly bottlenecks, provided that there is available capacity.” To prevent the incumbent from precluding competition in other markets, access regulation or matching price principles may need to be used.

Sectoral References

ELECTRICITY

Regulatory Reform: Economic Analysis and British Experience
Cambridge, MA: The MIT Press, 1999, Chapter 9.
Armstrong, Mark, Simon Cowan, and John Vickers

Describes how the U.K. government restructured the country’s electricity sector. Considers the economic characteristics of the sector and how the government resolved issues of system operation, competition, industry structure, privatization, transmission pricing, and the role of regulation.

Telecommunications and Power Sector Reforms in Latin America: Lessons Learned
InterAmerican Development Bank (undated).
Belt, Juan A. B.

Describes power sector reform in Argentina and the deregulatory approaches of El Salvador and Guatemala in telecommunications. Found positive results in all three sets of reform.

Making Competition Work in Electricity
New York: Wiley & Sons, 2002, Chapter 3.
Hunt, Sally

Explains that electricity generation is the major candidate for being made competitive, but the retail function can also be competitive. Describes four models of industry structure, namely, (1) vertically integrated monopoly, (2) integrated monopoly buys power from competing generators, (3) a fully competitive generating sector but with the distribution company having a monopoly over small final customers, and (4) retail competition. Explains how to determine the appropriate structural change.

GAS

Regulatory Reform: Economic Analysis and British Experience
Cambridge, MA: The MIT Press, 1999, Chapter 8.
Armstrong, Mark, Simon Cowan, and John Vickers

Describes how the U.K. government restructured the country’s gas sector. Considers the economic characteristics of the sector and how the government resolved issues of industry structure, transport, privatization, competition, price control, and the role of regulation. Provides assessments of the reforms.

TELECOMMUNICATIONS

Telecommunications and Power Sector Reforms in Latin America: Lessons Learned
InterAmerican Development Bank (undated).
Belt, Juan A. B.

Describes the deregulatory approaches of El Salvador and Guatemala in telecommunications. Found that minimal regulation led to positive results because networks were undeveloped.

ICT Regulation Toolkit
Washington, D.C.: infoDev and the International Telecommunications Union, 2007, Module 2.

Explains how to identify barriers to entry and essential facilities. Explains remedies for anticompetitive conduct, such as restricting access to essential facilities and engaging in price squeezes.

What the Transformation of Telecom Markets Means for Regulation
Note no. 121 in Public Policy for the Private Sector. Washington, D.C.: World Bank Group, 1997.
Smith, Peter

States that regulators need to resolve network interconnection issues, that competition through the sale of property rights (such as radio spectrum) can eliminate the need for regulation, and that the market can be regulated in a way more in line with antitrust regulation than with traditional utility regulation.

TRANSPORTATION

Urban Bus Toolkit: Tools and Options for Reforming Urban Bus Systems
Public-Private Infrastructure Advisory Facility, World Bank.
CPCS Transcom

Describes how to existing and alternative urban bus systems in developing and transitional countries. Offers practical advice to enact fundamental system reforms.

Best Methods of Railway Restructuring and Privatization
CFS Discussion Paper Series, number 11, World Bank, Washington, D.C., 1995.
Kopicki, Ron and Louis Thompson

Provides context and guidance to restructure the railways. Addresses distinct structural issues associated with rail enterprise reform, design of specialized intermediary institutions that carry out much of the work of railway restructuring, and management techniques that are appropriately adapted to railway reform and restructuring. Focuses on “best” methods built on seven case studies of recent railway restructuring efforts: Japan National Railway, New Zealand Railways, Argentina Railways, Swedish Railways, British Railways, and railroads in the United States, and Canadian Railways.

WATER

Regulatory Reform: Economic Analysis and British Experience
Cambridge, MA: The MIT Press, 1999, Chapter 10.
Armstrong, Mark, Simon Cowan, and John Vickers

Describes how the U.K. government reformed the country’s water sector. Considers the economic characteristics of the sector and how the government resolved issues of vertical structure, horizontal competition, yardstick competition, price control, service quality, environmental effects, metering, and privatization. Provides assessments of the reforms.

Key Words

Competition, Anti-competitive behavior, Efficiency, Cross-subsidization, Access pricing, Unbundling, Market foreclosure

 

Main Forms of Market and Transaction Organization

Core References

Regulating Infrastructure: Monopoly, Contracts, and Discretion
Cambridge, MA: Harvard University Press, 2003, Chapters 10 and 13.
Gómez-Ibáñez, José

Examines the tradeoffs between competition and coordination in policies for vertical unbundling. Considers the advantages and disadvantages of vertical unbundling, the determinants of vertical integration, and regulatory mechanisms for improving coordination with unbundling, namely regulated access charges and markets for capacity rights. Examines how to determine if unbundling is appropriate. Considers costs of competition, potential for innovation, and industry costs.

The Economics of Regulation: Principles and Institutions
Cambridge, MA: MIT Press, 1988, Reissue Edition, Chapter 6.
Kahn, Alfred

Covers the role and definition of competition. Discusses financial integration and vertical integration of utilities, conglomerates, horizontal and geographic integration, and intercompany coordination.

Sectoral References

ELECTRICITY

Making Competition Work in Electricity
New York: Wiley & Sons, 2002, Chapters 3 and 7.
Hunt, Sally

Explains that electricity generation is the major candidate for being made competitive, but the retail function can also be competitive. Describes four models of industry structure. Explains how to determine the appropriate structural change. Examines trading arrangements to ensure access.

Competition in Retail Electricity Supply
DAE Working Paper WP 0227, Department of Applied Economics, University of Cambridge, 2002.
Littlechild, Stephen C.

Explains benefits of retail competition in electricity. Further explains that competition is a process over time that has important entrepreneurial, learning, and marketing elements. States that not understanding these features of competition could have contributed to the problems some jurisdictions have experienced with electricity competition.

Lessons from the California Electricity Crisis
CSEM Working Papers, CSEMWP-110, 2003.
Wolak, F.

Illustrates the relationship between market and regulatory design and the functioning of electricity markets through the episode of the California electricity crisis during the summer of 2000. Identifies the role of the regulatory institutions in both the development and resolution of the crisis. Draw lessons and makes recommendations for preventing such events to occur in the future.

The Impact of Market Rules and Market Structure on the Price Determination Process in the England and Wales Electricity Market
POWER Working Papers, PWP-047, 1997.
Wolak, F., and R.H. Patrick

Examines how organized market rules affect firms’ market power in the short term. Illustrates the argument through analysis of the England and Wales electricity market, a market dominated by two generators, National Power and PowerGen, who compete in price bids and for generation sets and capacity level of these sets every half an hour. Finds that strategic use of capacity availability declarations gave these two generators the opportunity to obtain prices for their output substantially in excess of their marginal costs of generation.

GAS

Competition in the Natural Gas Industry: The emergence of spot, financial, and pipeline capacity markets
Note no. 137 in Public Policy for the Private Sector. Washington, D.C.: World Bank Group, March 1998.
Juris, Andrej

Explains that introducing open access to pipeline transportation or unbundling supply from transportation creates two distinct markets: the gas market, where participants trade natural gas as a commodity and minimize price and supply risks, and the transportation market, where participants trade transportation services for shipping gas through the pipeline system. Describes how trades occur in each market and the importance of assigning property rights.

Privatization, Restructuring, and Regulation of Network Industries
Cambridge, MA: MIT Press, 1999, Chapter 8.
Newbery, David M.

States that one of the unique aspects of the gas industry is that production costs are not well defined. Furthermore, gas can only be produced at certain sites and can only be transported via pipelines and thus an initial investment in pipelines must be made in order to serve a particular area. Describes other characteristics of gas production, such as large start-up costs and large sunk costs. Describes one possible production chain for the gas industry is that the gas producer sells the gas to pipeline operators, who deliver the gas to either large customers or local distributors. States that the main instrument for deregulation of the gas industry has been the development of spot and futures markets for gas.

TELECOMMUNICATIONS

Regulation, Market Structure and Performance in Telecommunications
OECD-Economic Studies 32: 2001, pp. 99-142.
Boylaud, O., and G. Nicoletti

Uses a database on 23 OECD countries to examine the effects of liberalization and privatization on productivity, prices and quality of service in long-distance (domestic and international), and mobile cellular telephony services markets. Found that while liberalization, viewed both as prospective and effective unambiguously enhances productivity and quality and reduces prices, no clear-cut effect was found for privatization.

ICT Regulation Toolkit
Washington, D.C.: infoDev and the International Telecommunications Union, 2007, Module 2.

Explains interconnection principles, how to establish and negotiate interconnection arrangements, how to establish interconnection charges, and technical aspects of interconnection arrangements.

TRANSPORTATION

Toolkit on Public-Private Partnerships in Highways
Public-Private Infrastructure Advisory Facility, World Bank.
Groupe Egis and Courdert Brothers

Provides low- and middle- income country guidance in the design and implementation of Public-Private Partnerships in the highway sector. Covers all types of road projects and both with and without private funding.

Urban Bus Toolkit: Tools and Options for Reforming Urban Bus Systems
Public-Private Infrastructure Advisory Facility, World Bank.
CPCS Transcom

Describes how to existing and alternative urban bus systems in developing and transitional countries. Offers practical advice to enact fundamental system reforms.

Port Reform Toolkit, 2nd Edition
Public-Private Infrastructure Advisory Facility, World Bank.
World Bank Transport Group

Provides guidance for undertaking sustainable and well-considered reforms of public institutions that provide, direct, and regulate port services in developing countries.

Concessions for Infrastructure: A Guide to Their Design and Award
Finance, Public Sector, and Infrastructure Network, WTP 399, World Bank, Washington, D.C., 1998.
Kerf, Michael et al.

Provides a guide to the complex range of issues and options related to design, award, implementation, monitoring, and modification of concessions. The main rationale for concessions is that they can facilitate the regulation of natural monopolies. They can be used to create competition for the market under conditions in which the service provider has significant market power.

Commercial Management and Financing of Roads
World Bank Technical Paper number 409, World Bank, Washington, D.C., 1998.
Heggie, Ian and Piers Vickers

Holds that the emerging consensus is that commercializaton requires four basic building blocks: a) establishing responsibility for managing roads; b) creating ownership of roads by involving users in their management; c) stabilizing road finance by securing an adequate, continual flow of funds; and d) strengthening management of roads by introducing sound businesses practices

WATER

Private Sector Participation in the Water Supply and Wastewater Sector: Lessons from Six Developing Countries
Directions in Development Series. Washington, D.C.: World Bank, 1996.
Rivera, D.

Investigates six recent experiences in developing countries with private-sector participation in the water and wastewater sectors. Presents the economic context, the nature of the arrangement between the government and the private sector, and the impact on service level, quality, and price for each of the six experiences. Assesses the performance of the private sector and gives some recommendations on how to increase the likelihood of its success.

Government Opportunism and the Provision of Water
in Spilled Water: Institutional Commitment in the Provision of Water Services, edited by William Savedoff and Pablo Spiller. Washington, D.C.: Inter-American Development Bank, 1999, pp.1-34.
Savedoff, William, and Pablo Spiller

Presents case studies of Mexico, Chile, and Argentina to provide lessons on market structure for water. Holds that Mexico shows that decentralization can improve performance and Chile shows that publicly owned water utilities can improve performance through private subcontracting. Later chapters examine these cases in more detail.

Economics of Water Resources: From Regulation to Privatization
2nd ed., Natural Resource Management and Policy Series. Dordrecht, Netherlands: Kluwer, 1998.
Spulber, N., and A. Sabbaghi

Presents the fundamentals of the economics of water resources, including the components of water resource management, the types and quantities of water demand and supply, market processes in water allocation, the nature of pollutants and their specific impact, the interactions in the economic-ecological system, and the problem of water re-use and recycling. Discusses the issues of public control through regulation and enforcement, privatization of water resources, and franchise competition.

Other References

Regulatory Reform: Economic Analysis and British Experience
Cambridge, MA: The MIT Press, 1999, Chapters 4-5.
Armstrong, Mark, Simon Cowan, and John Vickers

Examines the economics of competition, liberalization, and vertically related markets.

Privatization, Restructuring, and Regulation of Network Industries
Cambridge, MA: MIT Press, 1999, Chapter 5.
Newbery, David M.

Describes how to introduce competition in utility markets.

Key Words

Competition, Monitoring, Regulation, Efficiency, Risk allocation, Unbundling, Access pricing, Interconnection

 

Transition Aspects to Introducing Competition (Stranded Assets, Subsidized Customers)

Note: Readers should cross-reference this section with Chapter V Sections C and E, and Chapter VI Section C.

Core References

Transition Costs: Who Should Pay?
Electricity Journal 10 (5): 1997, pp. 68-77.
Baxter, Lester, Eric Hirst, and Stan Hadley.

Argues that to be efficient, stranded cost recovery mechanisms should not affect customer choice of suppliers relative to the choices that would be made if there were no stranded costs to be recovered, not encourage high-cost suppliers to operate instead of low-cost suppliers, not make it profitable for incumbents to under price a new entrant that has lower costs, encourage incumbents to lower stranded costs as much as possible, and be simple to administer.

Regulating Infrastructure: Monopoly, Contracts, and Discretion
Cambridge, MA: Harvard University Press, 2003, Chapter 10.
Gómez-Ibáñez, José

Examines the tradeoffs between competition and coordination in policies for vertical unbundling. Considers the advantages and disadvantages of vertical unbundling, the determinants of vertical integration, and regulatory mechanisms for improving coordination with unbundling.

The Economics of Regulation: Principles and Institutions
Cambridge, MA: MIT Press, 1988, Reissue Edition, Chapter 6.
Kahn, Alfred

Explains that price flexibility for all operators is important when there is competition. States that if the regulator refrains from lowering prices to levels where the less-efficient firms are unable to compete, the regulator in effect is creating a cartel-like situation where prices are based on the costs of the less-efficient firms. Describes how in some circumstances price discrimination by firms can increase efficiency.

Price Structures, Cross-Subsidies, and Competition in Infrastructure
Note no. 107 in Public Policy for the Private Sector. Washington, D.C.: World Bank Group, 1997.
Irwin, Timothy

Explains that price discrimination by regulated firms is common and is efficient in some cases. Considers how price discrimination generally does not withstand competition and cross-subsidies almost certainly do not. Describes price rebalancing and its effects on customer groups. Examines ways in which the government can preserve the old price structure through subsidies. Also considers other social safety nets.

Sectoral References

ELECTRICITY

The Regulatory Compact and Implicit Contracts: Should Stranded Costs Be Recoverable?
Energy Journal 19(3): 1998, pp. 69-83.
Boyd, J.

Applies principles from law and economics to address stranded assets in the electricity sector. Focuses on theories of efficient breach and implicit contracts to address the desirability of utility cost recovery in the context of liberalization. Identifies the circumstances under which cost recovery should occur and concludes that, when called for, this recovery should be partial rather than full.

Making Competition Work in Electricity
New York: Wiley & Sons, 2002, Chapters 3, 5, and 18.
Hunt, Sally

States that in order to introduce competition, there may be a need to buy out the old regime. Examines effects of private ownership and generation divestiture on stranded costs. Discusses how to quantify stranded costs, including the bottom-up design and the top-down methods.

Does Stranded Cost Recovery Distort Competition?
Electricity Journal 9 (3), 1996, pp. 31-45. Purchase.
Joskow, Paul L.

Defines stranded costs and describes how to calculate them.

TELECOMMUNICATIONS

ICT Regulation Toolkit
Washington, D.C.: infoDev and the International Telecommunications Union, 2007, Module 2.

Explains price rebalancing options and gives case studies. Provides illustrative examples of price rebalancing and describes how to evaluate the welfare effects.

Managing the Regulatory Process: Design, Concepts, Issues, and the Latin America and Caribbean Story
Washington, D.C.: The World Bank Group, 1999, Chapter 7.
Guasch, J. Luis, and Pablo Spiller

Describes transition issues in Latin America and the Caribbean. Considers pricing, market structure, access, and interconnection.

TRANSPORTATION

Results of Railway Privatization in Latin America
Transport Paper Series number 6, World Bank, Washington, D.C., 2005.
Sharp, Richard

Reviews the performance of railway concessions in Latin America from 1991 through 2004. Overall assessment is positive, particularly for freight railways. Railway traffic volumes have climbed, with some improvements in surface transport market share. Although numerous data problems exist, measures of productive efficiency almost uniformly show post-concession improvements in cargo transport. Effects on rail rates and service levels have generally received positive reviews. Evidence is less extensive for passenger services, mostly because concessioning was largely limited to commuter services in Argentina and Brazil and because such concessions must be evaluated in terms of complex subsidy and regulated pricing regimes, rather than as market-based private enterprises.

Privatization and Regulation of Transport Infrastructure: Guidelines for Policymakers and Regulators
World Bank Institute Development Study, World Bank, Washington, D.C., 2000.
Estache, Antonio

Addresses liberalization of transport policies and the role played by private operators and investors in transport infrastructure. Provides an overview of why economic regulation is important and examines four subsectors: airports, ports, railways, and roads. Discusses for each subsector: relevance from the viewpoint of a regulator; main privatization and regulation trends; price and quality regulation issues that characterize the sector, and performance indicators that the sector’s regulators should be able to rely on to be effective in their jobs.

WATER

Getting the Private Sector Involved in Water – What to Do in the Poorest of Countries?
Note no. 102 in Public Policy for the Private Sector. Washington, D.C.: World Bank Group, January 1997.
Brook Cowen, Penelope J.

Examines the transitional issues in water reforms. Considers pricing, contracting, and competition.

Key Words

Competition, Costs, Cross-subsidization, Price structure, Stranded Costs, Price rebalancing

 

Vertical Separation and Service Unbundling

Core References

Competition Policy for Small Market Economies
Cambridge, MA: Harvard University Press, 2003, Chapter 4.
Gal, Michal S.

Explains regulation of monopolies in a small economy context. Defines monopoly and describes approaches to regulating a pure monopoly (a monopoly that does not also compete against other firms) and to regulating a monopoly that competes with downstream rivals. Considers the viability of these downstream rivals.

Regulating Infrastructure: Monopoly, Contracts, and Discretion
Cambridge, MA: Harvard University Press, 2003, Chapters 10 and 13.
Gómez-Ibáñez, José

Examines the tradeoffs between competition and coordination in policies for vertical unbundling. Considers the advantages and disadvantages of vertical unbundling, the determinants of vertical integration, and regulatory mechanisms for improving coordination with unbundling, namely regulated access charges and markets for capacity rights. Examines how to determine if unbundling is appropriate. Considers costs of competition, potential for innovation, and industry costs.

Privatization, Restructuring, and Regulation of Network Industries
Cambridge, MA: MIT Press, 1999, Chapter 5.
Newbery, David M.

Describes how to introduce competition in utility markets. Considers introducing competition for markets served by state-owned utilities and issues of vertical separation.

Sectoral References

ELECTRICITY

Managing the Regulatory Process: Design, Concepts, Issues, and the Latin America and Caribbean Story
Washington, D.C.: The World Bank Group, 1999, Chapter 11.
Guasch, J. Luis, and Pablo Spiller

Examines reform of the power sector. Considers issues of private participation, regulation of prices, and power pools. Provides case studies of the U.K., U.S., Chile, Norway, and Argentina.

Regulating Infrastructure: Monopoly, Contracts, and Discretion
Cambridge, MA: Harvard University Press, 2003, Chapter 12.
Gómez-Ibáñez, José

Examines how to design capacity markets, using Argentina as a case study.

Making Competition Work in Electricity
New York: Wiley & Sons, 2002, Chapter 3.
Hunt, Sally

Explains that electricity generation is the major candidate for being made competitive, but the retail function can also be competitive. Describes four models of industry structure.

GAS

Competition in the Natural Gas Industry: The emergence of spot, financial, and pipeline capacity markets
Note no. 137 in Public Policy for the Private Sector. Washington, D.C.: World Bank Group, March 1998.
Juris, Andrej

Explains that introducing open access to pipeline transportation or unbundling supply from transportation creates two distinct markets. Describes how trades occur in each market and the importance of assigning property rights.

Natural Gas Markets in the U.K.: Competition, industry structure, and market power of the incumbent
Note no. 138 in Public Policy for the Private Sector. Washington, D.C.: World Bank Group, March 1998.
Juris, Andrej

Describes how deregulation of the U.K. natural gas industry facilitated new entry and competition in almost all segments, except pipeline transportation. The process of instituting competition has been difficult because the privatized incumbent was allowed to remain vertically integrated.

Regulation in New Natural Gas Markets—The Northern Ireland Experience
Note no. 179 in Public Policy for the Private Sector. Washington, D.C.: World Bank Group, April 1999.
Lehmann, Peter

Argues that a competitive structure may be difficult in new markets. Describes Northern Island’s attempt to use a period of exclusive licenses to phase in reforms.

TELECOMMUNICATIONS

Structural Separation in Telecommunications: A Review of Some Issues
Agenda, 10(1): 2003, pp. 43-60.
Henderson, A., and S. Dounoukos

Discusses the trade-offs involved in structural separation and divestiture of the access network activities from the non-access activities of incumbent telecommunications operators. Presents alternative approaches of countering anticompetitive behavior of incumbents based on accounting separation. Reports on the Australian experience with these issues.

ICT Regulation Toolkit
Washington, D.C.: infoDev and the International Telecommunications Union, 2007, Module 2.

Holds that incumbents control essential facilities. Regulators often require incumbents to unbundle these essential facilities and provide rivals access to them. Examples of such policies include local loop unbundling and collocation. Explains that in extreme cases, regulators may require incumbents to divest themselves of essential facilities.

Methods for Increasing Competition in Telecommunications Markets
University of Florida, Department of Economics, PURC Working Paper, 2008.
Jamison, Mark A.

Describes regulatory remedies to issues with vertical integration and market concentration.

Competition in Telecommunications
Cambridge, MA: MIT Press, Chapter 1.
Laffont, Jean-Jacques, and Jean Tirole

Provides a background on the technology and regulatory policy debate in the new telecommunications competitive environment.

TRANSPORTATION

Developing Best Practices for Promoting Private Sector Investment in Infrastructure
Five volume set, including: Roads, Airports and Air Traffic Control, Ports, Water, and Power. Asian Development Bank, Washington, D.C., 2000.
Asian Development Bank

Presents findings of a study on best practices for promoting private sector participation in key infrastructure sectors. The best practices cover the role of government, institutional reform, strategic planning, legal and regulatory frameworks, unbundling and competition, contractual arrangements, sources of financing, and the allocation of risk. Each volume is divided into two parts. Part 1 presents an overview of the study covering the growth of private sector infrastructure investment in Asia, cross-sectoral issues, and a summary of the best practices for each sector. Part 2 comprises the specific sector report.

Port Reform Toolkit, 2nd Edition
Public-Private Infrastructure Advisory Facility, World Bank.
World Bank Transport Group

Provides guidance for undertaking sustainable and well-considered reforms of public institutions that provide, direct, and regulate port services in developing countries.

Federal Railways Restructuring and Privatization Project
Implementation Completion and Results Report, number 25241, World Bank, Washington, D.C., 2003.
World Bank

Reports results of restructuring Brazil’s railway system. An important lesson is that addressing the redundancy issue upfront, and initiating a well-designed staff retrenchment program can be an effective instrument to minimize the impacts of restructuring, and to reduce opposition to such project. Other lessons convey the need for an established regulatory framework prior to initiating a privatization program, as in this case, a broader (geographical) restructuring of the public railways would have been needed to allow for more efficient private operations.

Key Words

Essential facility, Bottleneck facility, Vertical separation, Vertical integration, Unbundling

 

Access Pricing and Regulation of Access to Bottleneck Facilities

Core References

Valuation and Costing Issues in Access Pricing with Specific Applications to Telecommunications
in Infrastructure Regulation and Market Reform: Principles and Practice, edited by Margaret Arblaster and Mark Jamison. Canberra, Australia: ACCC and PURC, 1998, pp. 91-112.
Ergas, H.

Holds that, with respect to the costing of access pricing, assets should be valued at replacement cost, using, whenever possible, entry prices for in-use assets; efficient recovery of common costs will require a mark-up over the attributable long-run costs of each service; and the cost of capital benchmarks need to reflect the effect of irreversibility in investment. Advocates ECPR.

The Theory of Access Pricing: An Overview for Infrastructure Regulators
Centre for Economic Policy Research Discussion Paper 2133, London, 1999.
Estache, A., and T. Valetti

Provides an overview of theoretical issues related to the pricing of access that are at the heart of the policy debate on reforms of infrastructures. Discusses in detail the importance of access pricing in the context of a liberalized and vertically separated industry, a liberalized but vertically integrated industries, and unregulated access (private negotiations).

A Primer on Access Regulation and Investment
in Infrastructure Regulation and Market Reform: Principles and Practice, edited by Margaret Arblaster and Mark Jamison. Canberra, Australia: ACCC and PURC, 1998, pp. 150-160.
Gans, J. and Williams, P.

Holds that access prices exert an influence on investment incentives by directly affecting the rate-of return on the provider’s investment. States that for regulation to be most effective, pricing policy must be stated prior to access being sought and indeed, prior to investment being made. In an unregulated environment, providers will limit optimal use of the facility so as to limit profit-reducing competition downstream.

Managing the Regulatory Process: Design, Concepts, Issues, and the Latin America and Caribbean Story
Washington, D.C.: The World Bank Group, 1999, Chapter 6.
Guasch, J. Luis, and Pablo Spiller

Examines access pricing. Considers fully distributed cost, access deficit, ECPR, marginal cost, and price caps for telecommunications. Considers timetabling issues for energy.

Sectoral References

ELECTRICITY

Regulating Infrastructure: Monopoly, Contracts, and Discretion
Cambridge, MA: Harvard University Press, 2003, Chapter 12.
Gómez-Ibáñez, José

Examines how to design capacity markets, using Argentina as a case study.

Making Competition Work in Electricity
New York: Wiley & Sons, 2002, Chapters 7 and 9.
Hunt, Sally

States that detailed rules for assuring access to essential facilities—the trading arrangements—must take into account the problems of delivery. Further holds that trading arrangements must be made regarding how forward contracts are delivered and how spot sales are made and delivered. Describes three models of short-term trading arrangements, namely the integrated, wheeling, and decentralized models. Advocates the integrated model. Says market participants need to be assured that they will have access to use the transmission system on stable terms in the future. States that an ideal transmission pricing scheme is comprised of three parts: a transmission usage charge, a transmission connection charge, and a transmission access charge.

Model Interconnection Procedures and Agreement for Small Distributed Generation Resources
Washington, D.C.: National Association of Regulatory Utility Commissioners, 2003.
NARUC

This report provides a systematic overview of the issues that need to be addressed when small distributed generation equipment are to be connected to the electricity system.  A number of States, including California, Texas, New York, and Ohio have completed distributed generation (DG) interconnection procedures and agreements for small generators after extensive stakeholder processes. Other States have begun to consider how to implement DG. The National Association of Regulatory Utility Commissioners (NARUC) has adopted a number of principles, policies, and resolutions recognizing the importance of DG to the nation’s energy systems.  The report includes a Glossary of Terms, Codes and Standards, Certification procedures, and a Model Agreement.

GAS

Competition in the Natural Gas Industry: The emergence of spot, financial, and pipeline capacity markets
Note no. 137 in Public Policy for the Private Sector. Washington, D.C.: World Bank Group, March 1998.

Juris, Andrej

Explains that introducing open access to pipeline transportation or unbundling supply from transportation creates two distinct markets: the gas market, where participants trade natural gas as a commodity and minimize price and supply risks, and the transportation market, where participants trade transportation services for shipping gas through the pipeline system. Describes how trades occur in each market and the importance of assigning property rights

Natural Gas Markets in the U.K.: Competition,  industry, structure, and market power of the incumbent
Note no. 13 in Public Policy for the Private Sector. Washington, D.C.: World Bank Group, March 1998.
Juris, Andrej

Describes how deregulation of the U.K. natural gas industry facilitated new entry and competition in almost all segments, except pipeline transportation. The process of instituting competition was difficult because the privatized incumbent was allowed to remain vertically integrated. Eventually, the incumbent voluntarily split into two companies. Resulting access contracts are discussed.

TELECOMMUNICATIONS

ICT Regulation Toolkit
Washington, D.C.: infoDev and the International Telecommunications Union, 2007, Module 2.

Explains interconnection principles, how to establish and negotiate interconnection arrangements, how to establish interconnection charges, and technical aspects of interconnection arrangements.

Regulatory Techniques for Addressing Interconnection, Access, and Cross-Subsidy in Telecommunications
in Infrastructure Regulation and Market Reform: Principles and Practice, edited by Margaret Arblaster and Mark Jamison. Canberra, Australia: ACCC and PURC, 1998, pp. 113-129.
Jamison, M.

Explains that regulators generally consider three basic approaches when setting prices for interconnection and access: (1) the ECPR; (2) cost-based pricing; and (3) demand-based pricing or Global Price Caps. Further explains that the basic theory behind the ECPR is that, if the incumbent receives the same profits from interconnection and access as it does from sales of the retail product, then competitors can enter the market only if they are more efficient in providing retail functions than is the incumbent. In cost-based pricing, regulators generally choose a long-run-incremental-cost-plus-contribution approach. The demand-based approach uses Ramsey-Boiteux pricing principles.

Competition in Telecommunications
Cambridge, MA: MIT Press, Chapters 3-5.
Laffont, Jean-Jacques, and Jean Tirole

Describes economic pricing principles for one-way and two-way access. Provides both narrative explanation and technical descriptions.

TRANSPORTATION

The Theory of Access Pricing
Policy, Research Working Paper 2097, World Bank, Washington, D.C., 1999.
Valletti, Tommaso and Antonio Estache

Discusses access pricing which is an important component of a regulatory environment guaranteeing that competitors have access to the services of potential “bottleneck” facilities too costly to duplicate. Rules covering fair access to these facilities – including fair access prices – generally improve economic efficiency by easing competition in markets both upstream and downstream from the bottleneck. Appropriate access pricing rules are especially needed when a dominant firm controls the supply of one or more inputs — for example, gas transportation, electricity transmission, local telecommunication access, or railway track — vital for its competitors.

Best Methods of Railway Restructuring and Privatization
CFS Discussion Paper Series, number 11, World Bank, Washington, D.C., 1995.
Kopicki, Ron and Louis Thompson

Provides context and guidance to restructure the railways. Addresses distinct structural issues associated with rail enterprise reform, design of specialized intermediary institutions that carry out much of the work of railway restructuring, and management techniques that are appropriately adapted to railway reform and restructuring. Focuses on “best” methods built on seven case studies of recent railway restructuring efforts: Japan National Railway, New Zealand Railways, Argentina Railways, Swedish Railways, British Railways, and railroads in the United States, and Canadian Railways.

Other References

Price Regulation of Access to Telecommunications Networks
Department of Economics, Boston University (undated).
Vogelsang, Ingo

Provides an overview of the economic research on telecommunications interconnection pricing.

Key Words

Access pricing, Cost of capital, Competition, Investment, Ramsey Pricing, Incremental Costs, Interconnection, Unbundling

 

Application of Competition Rules and Antitrust Principles in Regulation and Models of Interaction With Competition/Antitrust Authorities

Core References

Reflections on Elements of Effective Antitrust Enforcement
Remarks as Prepared for Delivery at the Global Competition Review Fourth Annual Antitrust Leaders Forum, Miami, Florida, February 6, 2015.
Baer, Bill

Examines the essentials for performing well as a competition regulator. These include: 1) recognizing that the role is law enforcement, not economic regulation; 2) emphasizing and preparing for the courtroom process; 3) engaging and coordinating with other enforcement agencies; 4) being mindful of the costs imposed by competition actions; 5) providing front-end guidance; 6) paying careful attention to remedies.

Concurrent Competition Powers in Sectoral Regulation: A Report by the Department of Trade and Industry and HM Treasury
United Kingdom, 2006.
Department of Trade and Industry

Examines the interface between the competition authority and sector regulators in the U.K. Considers how regulators balance their concurrent competition powers against their sector-specific regulatory powers and how regulators that have concurrent competition powers use these powers.

Competition Policy for Small Market Economies
Cambridge, MA: Harvard University Press, 2003, Chapters 2 and 4.
Gal, Michal S.

Examines the implications of small economy size on competition policy. Explains regulation of monopolies in a small economy context. Defines monopoly and describes approaches to regulating a pure monopoly (a monopoly that does not also compete against other firms) and to regulating a monopoly that competes with downstream rivals. Considers the viability of these downstream rivals.

Managing the Regulatory Process: Design, Concepts, Issues, and the Latin America and Caribbean Story
Washington, D.C.: The World Bank Group, 1999, Chapters 14-15.
Guasch, J. Luis, and Pablo Spiller

Examines competition policies with an emphasis on Latin America. Considers the relationship between regulation and competition policy. Further considers regulating market structure, competition law and its enforcement, and the role of the judiciary. Examines cases of Chile and Peru.

Competition Law and Policy — Theoretical Underpinnings
in Infrastructure Regulation and Market Reform: Principles and Practice, edited by Margaret Arblaster and Mark Jamison. Canberra, Australia: ACCC and PURC, 1998, pp. 16-26.
Smith, R.

Holds that competition policy and competition law are not about removing or outlawing monopolies, but are based on the belief that a competitive market will result in economic efficiency and increased social welfare. Examines types of conduct: a) contracts, arrangements and understandings between competitors; b) misuse of existing market power; c) exclusive supply arrangements and other vertical relationships (such as resale price maintenance); and d) mergers and acquisitions. Describes the typical structure-conduct-performance paradigm and advocates considering the dynamic interplay between current sellers and potential entrants.

Sectoral References

ELECTRICITY

Looking for Trouble: Competition Policy in the U.S. Electricity Industry
CSEM Working Papers, CSEMWP-109, 2003.
Bushnell, J.

Discusses the shift in focus of electricity regulators from fostering a competitive market structure towards applying regulation to specific market outcomes since the summer 2000 California crisis. Investigates the extent to which this event is a failure of the policy or of the tools that were used to implement it. Describes the methods used by regulators to test for potential abuse of market power.

Mitigating Market Power in Electricity Networks
prepared for a conference titled “Towards a European Market of Electricity: What Have We Learnt from Recent Lessons? Spot Market Design, Derivatives and Regulation” held in Rome, June 2002.
Newbery, D.

Examines four features of the policy that mitigates market power in European electricity networks: capacity divestiture, entry stimulation, network interconnection, and capacity to apply regulation to the competitive generation segment. Shows how each of these actions taken separately can improve competition in wholesale electricity markets, but also how, unless carefully designed, this can be in conflict with another action with possibly long-term undesirable consequences. Lessons are drawn from California, the UK, and other European countries.

TELECOMMUNICATIONS

ICT Regulation Toolkit
Washington, D.C.: infoDev and the International Telecommunications Union, 2007, Module 2.

Explains that governments adopt competition policies to respond to market failures. Intervention through competition policy may try to modify the behavior of firms or may try to control market structure. Holds that regulation can be both prospective (control future behavior) and retrospective (respond to past behavior). Competition policy is generally retrospective. Regulatory agencies sometimes coordinate activities with competition authorities and at other times serve as the competition authority.

Analyzing Telecommunications Market Competition: A Comparison of Cases
University of Florida, Department of Economics, PURC Working Paper, 2009.
Jamison, Mark, Sanford Berg, and Liangliang Jiang

Describes how U.S. telecommunications regulators and U.K. telecommunications regulators assess market power. Also describes steps Japan has taken to increase telecommunications competition.

Competition in the Provision of Fixed Telephony Services
Director General of Telecommunications, Office of Telecommunications, London, U.K., 2001.
Oftel

Describes the U.K. telecommunications regulator’s approach for protecting consumers in markets where competition is currently ineffective in constraining prices. States that the regulator first defines the relevant markets, then assesses the level of competition in each relevant market, and then determines the extent to which regulation is necessary in that market.

Telecommunications Regulations: Institutional Structures and Responsibilities
Working Paper no. 237, Organization for Economic Co-operation and Development (OECD), Washington, D.C., 26 May 2000.
Min, Wonki

States that as the role of the competition authority has grown in telecommunications, the possibility of inconsistent regulatory rulings has increased. Holds that the principle of lex specialis usually applies. The three primary models for ensuring concurrent jurisdiction are: (1) Give full regulatory power to the competition authority (e.g., New Zealand); (2) Give the telecommunication regulator authority to apply competition rules to the telecommunication sector (e.g., U.K.); and (3) Establish a co-ordination mechanism to resolve competition issues. A number of countries have formal co-ordination mechanisms, for example, Switzerland.

TRANSPORTATION

Law and Economic Regulation in Transportation
Quorum Books. 1986.
Dempsey, Paul Stephen

Provides an overview of the development of transportation law in the United States in the last century. Traces the origins of economic regulation, the changing role of regulators, and the effects of deregulation. Economic regulations are separated into three areas: policing entry and exit from transportation, efforts to keep rates just, reasonable, and nondiscriminatory, and mergers, consolidations, antitrust, and other issues.

Other References

Competition Policy: History, Theory and Practice
Cheltenham, U.K.: Elgar, 2001.
Neumann, Manfred

Provides an international perspective on the development of competition policy, its underlying theories, and its application.

Economics of Regulation and Antitrust
Cambridge, MA: MIT Press. 2000, Chapter 1.
Viscusi, W. Kip, John M. Vernon, and Joseph E. Harrington, Jr.

Contrasts regulation and competition policy.

Key Words

Competition, Monopoly, Market Power, Regulation, Antitrust

 

Case Studies

Opening the Philippine Telecommunications Industry to Competition, Part I, and Opening the Philippine Telecommunications Industry to Competition, Part II
The World Bank, May 2000.
Aldaba, Rafaleta A.M.

Innovation, Incentives and Competition: A new deal for the water industry
London, U.K.: European Policy Forum, 2009.
Ballance, Tony, Ian Byatt, Martin Cave, Ronan Palmer and Alan Sutherland

Independent Review: of competition and innovation in Water Markets
Norwich, U.K.: Crown Copyright 2008.
Cave, Martin

Managing the Introduction of Competition
in Proceedings of the SAFIR Workshop on Regulatory Strategy, S. K. Sarkar, editor, New Dehli, India: Tara Energy Research Institute, 2001, pp. 25-34.
Au, M. H.

Northern Electricity Distribution Service in Northern Namibia: A Case Study in the Private Provision of Rural Infrastructure
July 31, 2002.
Econ One Research, Inc. and EMCON Consulting Group

Regulatory Reforms in India: Effectiveness, Efficiency, and Impacts
The Energy and Resources Institute, New Delhi, India, 2003.
Garg, A., M. Kabra, and R. Kacker

Death of the Standard Model for Power Sector Reform in Less Developed Countries and the Emergence of Hybrid Power Markets
Working Paper, Management Program in Infrastructure Reform & Regulation, University of Cape Town Graduate School of Business, 2008.
Gratwick, Katharine Nawaal, and Anton Eberhard

U.S. Experiences with Business Separation in Telecommunications
University of Florida, Department of Economics, PURC Working Paper, 2008.
Jamison, Mark A., and James Sichter

Introducing Competition into the Electricity Supply Industry in Developing Countries: Lessons from Bolivia
August 2000.
Joint UNDP/World Bank Energy Sector Management Assistance Programme

Report on the Effectiveness of Competition in Hong Kong’s Telecommunications Market: An International Comparison
June 2003.
Office of Telecommunications Authority, Hong Kong (OFTA)

Determination Notice: Assessment of Dominance in Mobile Call Termination
OUR, Kingston, Jamaica, September 2, 2004.
Office of Utilities Regulation

Competition Law and Policy in the United States
United States Department of Justice (undated).
Pittman, Russell

Privatization of Electricity Distribution: The Orissa Experience
Tata Energy Research Institute, New Delhi, India, 2003. Purchase.
Ramanathan, K. and S. Hasan

Concurrency or Convergence? Competition and Regulation Under the Competition Act of 1998
in Utility Regulation and Competition Policy edited by Colin Robinson, Cheltenham, UK: Edward Elgar Publishing Limited, 2002, pp. 164-175.
Sharpe QC, Tom

Economic Analysis of Interconnection Charge Policy: A Report by Strategic Policy Research, Inc. for OSIPTEL
February 12, 1999.
Strategic Policy Research

A Model for Calculating Interconnection Costs in Telecommunications
Washington, D.C.: PPIAF and the World Bank, 2004.
Um, Paul Naumba, Laurent Gille, Lucile Simon, Christophe Rudelle