The Coexistence of Regulation, State Ownership and Competition in Infrastructure Industries

Abstract

In many countries, infrastructure liberalization progressed faster than the privatization of former state monopolies. Regulatory agencies, established to oversee the transition and safeguard the preconditions for competition, therefore monitor state-owned firms in addition to privately owned firms. Prior accounts of similar arrangements have generated contradictory claims. The paper studies two propositions of this literature theoretically and empirically for the European telecommunications sector. It examines, firstly, whether the dual role of the state as owner and regulator distorts competition. Secondly, it probes whether the combination of government ownership and regulation helps overcome some of the shortcomings of the regulation of private firms. Although we find hints of tensions between state ownership and government regulation, we do not find a systematic bias. We do not find compelling evidence that state ownership is used to pursue public interest goals that could not be achieved by private regulated firms.