Competition and Economic Regulation in Infrastructure Industries: Lessons from Economic History and Current UK Debates

Abstract

This paper discusses the role of affordability in the economic regulation of the retail markets of network infrastructure industries – railways, electricity, water and telecommunications/ICT. The paper first considers the rise of these industries after 1800 from serving a small number of businesses and richer consumers and their transition to providing ‘necessity’ goods for the whole population. It also describes the evolution of these industries in the UK and USA over the period 1850-1970 from competitive supply to regulated vertically and horizontally integrated monopoly companies. From 1850 onwards, economic regulation developed to provide monopoly oversight and regulation that promoted affordable services with USOs. The paper then turns to more recent UK debates and, in particular, to the analysis and findings of two major recent reports (i) the 2015-16 Ofcom Strategic Review of Digital Communications and (ii) the 2015-16 CMA Energy Investigation. These reviews are discussed in the light of the economic history related in the first part of the paper. The paper concludes that affordability and related considerations has led in the UK to ‘regulation for competition’ replacing reliance solely on ex post competition policy for household and SME retail markets in these industries. General political economy concerns over the affordability of these goods as reflected in the economic history suggest that retail price controls will remain at least a significant threat and often a temporary or long-term actuality for household and SME retail markets for electricity and natural gas, water and sewerage as well as ICT services.