IDEAS home Printed from https://ideas.repec.org/a/bpj/rneart/v8y2009i2n1.html
   My bibliography  Save this article

Is Protecting Sunk Investments by Consumers a Key Rationale for Natural Monopoly Regulation?

Author

Listed:
  • Biggar Darryl

    () (Australian Competition and Consumer Commission and Australian Energy Regulator)

Abstract

Why regulate natural monopolies? Conventional economic theory points to the price-marginal cost margin and the ensuing deadweight loss. But this hypothesis does a poor job of explaining the way that regulators behave in practice. This paper proposes an alternative hypothesis: that natural monopoly regulation exists to protect the sunk investments made by consumers of the regulated firm. This hypothesis explains many of the practices of regulators which make little or no sense under conventional economic theory, such as the desire to pursue stable prices, the aversion to Ramsey pricing, and the role of incremental cost as a pricing floor.

Suggested Citation

  • Biggar Darryl, 2009. "Is Protecting Sunk Investments by Consumers a Key Rationale for Natural Monopoly Regulation?," Review of Network Economics, De Gruyter, vol. 8(2), pages 1-25, June.
  • Handle: RePEc:bpj:rneart:v:8:y:2009:i:2:n:1
    as

    Download full text from publisher

    File URL: https://www.degruyter.com/view/j/rne.2009.8.2/rne.2009.8.2.1173/rne.2009.8.2.1173.xml?format=INT
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. David M. Levinson, 2002. "Financing Transportation Networks," Books, Edward Elgar Publishing, number 2308, September.
    2. Noam, Eli M, 1994. "Beyond liberalization II: The impending doom of common carriage," Telecommunications Policy, Elsevier, pages 435-452.
    3. Fielding, Gordon J. & Klein, Daniel B., 1993. "How To Franchise Highways," University of California Transportation Center, Working Papers qt79z9x6fs, University of California Transportation Center.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:eee:trapol:v:59:y:2017:i:c:p:28-37 is not listed on IDEAS
    2. Darryl Biggar, 2013. "'Why Johnny Can't Regulate': A Reply to Henry Ergas," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 20(2), pages 105-110.
    3. Crawford, Garth, 2015. "Network depreciation and energy market disruption: Options to avoiding passing costs down the line," Economic Analysis and Policy, Elsevier, vol. 48(C), pages 163-171.
    4. Hesamzadeh, Mohammad R. & Biggar, Darryl R. & Hosseinzadeh, Nasser, 2011. "The TC-PSI indicator for forecasting the potential for market power in wholesale electricity markets," Energy Policy, Elsevier, vol. 39(10), pages 5988-5998, October.
    5. Biggar, Darryl, 2010. "Exit fees and termination fees revisited: funding irrigation infrastructure in a manner compatible with water trade," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 54(4), December.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:rneart:v:8:y:2009:i:2:n:1. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla). General contact details of provider: https://www.degruyter.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.