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The welfare consequences of tariff rebalancing in the domestic gas market

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  • Andres Gomez-Lobo

Abstract

The domestic energy markets in the United Kingdom are still in a process of structural change. Earlier this year, limited competition for the supply of household domestic gas was introduced, with full-scale competition expected to develop in the next few years. Competition for the supply of electricity to households is expected to begin in 1998. The introduction of competition in the supply of these energy goods will force tariffs to become more cost-reflective. Until now, maintaining crosssubsidies between consumer groups has not posed any difficulties, given that the suppliers of electricity as well as British Gas have enjoyed monopoly concessions. Profits lost by subsidising one group of consumers have been compensated by higher price-over-cost margins for other groups. Competition is likely to change this. New entrants will try to target market segments where current prices are above supply costs and will have no incentive to supply groups where costs are above prices. To survive, incumbents — who have universal services obligations — will be forced to end internal cross-subsidies.

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Bibliographic Info

Article provided by Institute for Fiscal Studies in its journal Fiscal Studies.

Volume (Year): 17 (1996)
Issue (Month): 4 (November)
Pages: 49-65

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Handle: RePEc:ifs:fistud:v:17:y:1996:i:4:p:49-65

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  1. Ruth Hanncock & Catherine Waddams Price, . "Competition in the British Domestic Gas Market: Efficiency and Equity," Discussion Papers in Public Sector Economics 95/1, Department of Economics, University of Leicester.
  2. Ruth Hancock & Catherine Waddams Price, 1995. "Competition in the British domestic gas market: efficiency and equity," Fiscal Studies, Institute for Fiscal Studies, vol. 16(3), pages 81-105, August.
  3. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  4. Baker, Paul & Blundell, Richard & Micklewright, John, 1989. "Modelling Household Energy Expenditures Using Micro-data," Economic Journal, Royal Economic Society, vol. 99(397), pages 720-38, September.
  5. Philip Burns & Ian Crawford & Andrew Dilnot, 1995. "Regulation and redistribution in utilities," Fiscal Studies, Institute for Fiscal Studies, vol. 16(4), pages 1-22, January.
  6. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
  7. Moffitt, Robert, 1990. "The Econometrics of Kinked Budget Constraints," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 119-39, Spring.
  8. Meghir, Costas & Robin, Jean-Marc, 1992. "Frequency of purchase and the estimation of demand systems," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 53-85.
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Cited by:
  1. Estache, Antonio & Gomez-Lobo, Andres & Leipziger, Danny, 2000. "Utility privatization and the needs of the poor in Latin America - Have we learned enough to get it right?," Policy Research Working Paper Series 2407, The World Bank.
  2. Pablo Serra, 2000. "Subsidies in Chilean Public Utilities," Documentos de Trabajo 70, Centro de Economía Aplicada, Universidad de Chile.

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