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Natural gas distribution in Italy: When competition does not help the market

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  • Dorigoni, Susanna
  • Portatadino, Sergio
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    Abstract

    In this article consequences of the introduction of competition for the field in the Italian natural gas distribution sector are analyzed. Natural gas distribution constitutes, due to its technical and economic features, a natural monopoly. For this reason, in the framework of the liberalization process, the Italian legislator has introduced, in addition to price regulation, competitive tenders in order to have different operators compete amongst each other for the service concession. After a brief overview of the economic theory referring to competition for the field and an overview of the Italian gas market, the critical aspects of the outlined regulatory framework will be highlighted. More particularly the main features of tenders will be assessed, while, in the following section, the meaning of the imposed revenue cap and its tie to the concession fee will be explained. An analysis of possible reasons for extremely high concession fees will be carried out, evaluating their possible impact on companies' profitability. In the last part of the work, a solution will be proposed in order to build an effective regulatory framework in which competition for the field could actually lead the market to efficiency.

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    File URL: http://www.sciencedirect.com/science/article/B6VFT-4W7B515-1/2/a6b228dae1dfab600326795e09bb9e3c
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    Bibliographic Info

    Article provided by Elsevier in its journal Utilities Policy.

    Volume (Year): 17 (2009)
    Issue (Month): 3-4 (September)
    Pages: 245-257

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    Handle: RePEc:eee:juipol:v:17:y:2009:i:3-4:p:245-257

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    Web page: http://www.elsevier.com/locate/inca/30478

    Related research

    Keywords: Natural gas distribution Regulation Competition for the field;

    References

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    1. Oliver E. Williamson, 1967. "Hierarchical Control and Optimum Firm Size," Journal of Political Economy, University of Chicago Press, vol. 75, pages 123.
    2. Klemperer, Paul, 2002. "How (not) to run auctions: The European 3G telecom auctions," European Economic Review, Elsevier, vol. 46(4-5), pages 829-845, May.
    3. Kenneth E. Train, 1991. "Optimal Regulation: The Economic Theory of Natural Monopoly," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200848, December.
    4. Braeutigam, Ronald R., 1989. "Optimal policies for natural monopolies," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 23, pages 1289-1346 Elsevier.
    5. Laffont, Jean-Jacques & Tirole, Jean, 1987. "Auctioning Incentive Contracts," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 921-37, October.
    6. David E. M. Sappington & Joseph E. Stiglitz, 1987. "Privatization, information and incentives," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 6(4), pages 567-585.
    7. Crain, William Mark & Ekelund, Robert B, Jr, 1976. "Chadwick and Demsetz on Competition and Regulation," Journal of Law and Economics, University of Chicago Press, vol. 19(1), pages 149-62, April.
    8. Alfred E. Kahn, 1988. "The Economics of Regulation: Principles and Institutions," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610523, December.
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    Cited by:
    1. Carrosio, Giovanni, 2013. "Energy production from biogas in the Italian countryside: Policies and organizational models," Energy Policy, Elsevier, vol. 63(C), pages 3-9.
    2. Capece, Guendalina & Cricelli, Livio & Di Pillo, Francesca & Levialdi, Nathan, 2010. "A cluster analysis study based on profitability and financial indicators in the Italian gas retail market," Energy Policy, Elsevier, vol. 38(7), pages 3394-3402, July.

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