SHEPHERDING FIRMS WITH SHEPHERDING FIRMS WITH MARKET POWER: WHAT IS - - PowerPoint PPT Presentation

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SHEPHERDING FIRMS WITH SHEPHERDING FIRMS WITH MARKET POWER: WHAT IS - - PowerPoint PPT Presentation

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SHEPHERDING FIRMS WITH SHEPHERDING FIRMS WITH MARKET POWER: WHAT IS MARKET POWER: WHAT IS THE BEST WAY TO DO IT? THE BEST WAY TO DO IT? David K David K Round Round Pr Profess ofessor of Economics and Direct r of Economics and

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“SHEPHERDING” FIRMS WITH “SHEPHERDING” FIRMS WITH MARKET POWER: WHAT IS MARKET POWER: WHAT IS THE BEST WAY TO DO IT? THE BEST WAY TO DO IT?

David K David K Round Round Pr Profess

  • fessor of Economics and Direct

r of Economics and Director

  • r

Centre for Regulation and Market Analysis Centre for Regulation and Market Analysis University of Sout University of South Australia h Australia ACCC Regulatory Confer Regulatory Conference ence Evaluating the Effect Evaluating the Effectiveness of iveness of Regulation Regulation Gold Coast, Queensland, July 2 Gold Coast, Queensland, July 29-30 2004

  • 30 2004
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2

The Shepherd’s Flock The Shepherd’s Flock

  • Access pricing –

Access pricing – getting it right etting it right – “aggressive” regulation: to/for whom? “aggressive” regulation: to/for whom? – innovation innovation – pricing rules pricing rules – type 1 and type 2 errors of regulation type 1 and type 2 errors of regulation

  • What is effective competition?

What is effective competition? – structural or behavioural indicia structural or behavioural indicia – does the number of firms matter? does the number of firms matter? – dynamic efficiency considerations dynamic efficiency considerations – competitive parity competitive parity – demand side considerations demand side considerations

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3

Wethering the storm Wethering the storm

  • Type 1 regulatory errors:

Type 1 regulatory errors: reject a reject a socially acceptable price socially acceptable price

– a cost to the regulated firm and a loss to a cost to the regulated firm and a loss to society society

  • Type 2 regulatory errors:

Type 2 regulatory errors: approve a approve a socially damaging price socially damaging price

– a cost to consumers a cost to consumers

  • The costs of getting it wrong

The costs of getting it wrong

– regulatory regulatory – commercial commercial – consumer/social consumer/social

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4

Driving the mob Driving the mob

  • The goals of access pricing

The goals of access pricing

– public interest public interest

  • consumers

consumers

  • producers

producers

– choice choice – efficiency efficiency

  • Which competitive framework?

Which competitive framework?

– perfect competition perfect competition – workable/effective competition (“loose workable/effective competition (“loose regulation”) regulation”)

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5

Driving the mob (cont) Driving the mob (cont)

  • What kind of framework?

What kind of framework?

– allocative v allocative versus dynamic efficiency rsus dynamic efficiency – “innov “innovation is supr tion is supremely important” emely important”

  • Building blocks

Building blocks

– regulatory straig regulatory straightjackets htjackets – is there one “right” price? is there one “right” price? – how to allow room for err how to allow room for error

  • Pricing specificity: a tough call

Pricing specificity: a tough call

– “compar “comparable retur ble returns” s” – is there a socially is there a socially accept acceptable range? able range? – what is “re what is “reasonably generous”? sonably generous”? – can the regulator accept what firms claim? can the regulator accept what firms claim? – should it?

  • uld it?
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6

Driving the mob (cont) Driving the mob (cont)

  • Traditional focus on supply side

Traditional focus on supply side issues issues

– the need for foresight the need for foresight

  • What can history tell us in the

What can history tell us in the future? future?

– the need for follow-up the need for follow-up

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7

A battering ram for A battering ram for regulation? regulation?

  • Signals versus incentives

Signals versus incentives

  • Confrontation or conciliation?

Confrontation or conciliation?

  • Carrots and sticks: motives for

Carrots and sticks: motives for innovation and allocative innovation and allocative efficiency efficiency

– “real pressure” to make progress “real pressure” to make progress

  • ccur
  • ccur
  • Pass-through problems

Pass-through problems

– progress reports progress reports

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8

Who is being fleeced? Who is being fleeced?

  • Do consumers of access-controlled

Do consumers of access-controlled services have any choice? services have any choice?

– who should provide this? who should provide this? – how ofte how often? n? – with what protection? with what protection?

  • The role of price-service offerings

The role of price-service offerings

– putting regulated firms to a market test putting regulated firms to a market test – remember what the Trade remember what the Trade Practices Practices Tribunal said in Tribunal said in QCMA QCMA

  • Making firms responsive to market

Making firms responsive to market forces in the absence of (m)any forces in the absence of (m)any rivals rivals

– the degree of regulatory aggression the degree of regulatory aggression – the learning curve the learning curve

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9

Who’s pulling the wool Who’s pulling the wool

  • ver our eyes?
  • ver our eyes?
  • What is the real policy objective

What is the real policy objective in access pricing? in access pricing?

  • Implementation difficulties

Implementation difficulties

  • Should economists be given a

Should economists be given a large WACC? large WACC?

  • Is there one single correct

Is there one single correct access price? access price?

  • A process of evolution in policy

A process of evolution in policy and learning – and learning – it is early days t is early days yet yet

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10

Dealing with the Dealing with the breakaways breakaways

  • What do firms really want?

What do firms really want?

  • The need for regulatory follow-

The need for regulatory follow- up up

  • Do regulators’ attitudes and

Do regulators’ attitudes and methods need to change? methods need to change?

  • Is there a one-size-fits-all model

Is there a one-size-fits-all model

  • f access pricing?
  • f access pricing?
  • Temporal/dynamic

Temporal/dynamic considerations considerations

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11

Mustering the ideas Mustering the ideas

  • Advocacy

dvocacy

  • Corporations
  • rporations
  • Consumers
  • nsumers
  • Co-operation
  • -operation
  • Numbers of firms

umbers of firms

  • Competitive outcomes
  • mpetitive outcomes
  • Compliance
  • mpliance
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12

Concluding round-up Concluding round-up

  • Goals and means must be carefully

Goals and means must be carefully identified identified

  • Focus on dynamic market-specific

Focus on dynamic market-specific behavioural outcomes, not numbers behavioural outcomes, not numbers

  • f firms
  • f firms
  • Flexibility is paramount

Flexibility is paramount

  • Give consumers a chance to bleat

Give consumers a chance to bleat

  • Keep in mind the trade-off between

Keep in mind the trade-off between the interests of consumers and the interests of consumers and legitimate business interests legitimate business interests