Vertical Separation in Network Industries
Processes are well underway to deregulate and liberalize several network industries in Europe as well as the United States with the intent to stimulate competition in parts of production and distribution. The model of choice for this is often to separate vertically integrated activities in the production chain, such as (bulk) production, from distribution, wholesale and retail. This disintegration then isolates the natural monopoly element(s) in the chain - in particular in the network functions - for strict regulation, while inviting free entry into the other layers of the production. Increased competition in the latter is expected to lead to more cost-effective production, reduced prices and enhanced product quality and service. The much debated recent decision of the Dutch government to lead in the European process to liberalize the energy sector is at least in part driven by this idea.
A complex combination of effects plays a role in judging the overall welfare consequences of vertical separation. These include the expected gains from increased horizontal competition and potential efficiencies in regulation, but also substantial transaction costs and the introduction of double mark-ups, which are at least partially off-setting the benefits. In each case - and fuelled by the large private interests that are often at stake for the parties concerned - the debate over whether the advantages of separation outweigh the disadvantages is hot.
ENCORE presented an afternoon of discussion on these issues. Sweder van Wijnbergen (University of Amsterdam), one of the key instigators of structural reforms to stimulate competition in The Netherlands and elsewhere in the world, chaired the afternoon and led the discussion. He sketched the current state of affairs in decision making on vertical separation in the Netherlands. Jan Tuinstra (University of Amsterdam) took a theoretical perspective and balanced some of the advantages and disadvantages of vertical separation and competition in network industries. John Kwoka (Northeastern University, U.S.A.) drew on his extensive empirical research on the effectiveness of vertical separation in the US electricity markets to convey US experiences and stipulate some lessons for Europe. After the presentations, there was ample opportunity for discussion with the floor.
Program
14.00 - 14.30 Sweder van Wijnbergen: State of Affairs
in Vertical Separation in the Netherlands - Introduction, to view
the presentation, click
here.
14:30 - 15:15 Jan Tuinstra: Balancing Pros and Cons of Vertical Separation in Network Industries, to view the presentation,
15:15 - 15:45 Coffee Break
15:45 - 16:45 John Kwoka: Divestiture, Access, and Competition in Network Industries: The U.S. Experience, to view the presentation, click here.
16:45 - 17:15 Discussion
17:15- Drinks
Practical information
Date |
November 13, 2007 |
Time |
14.00 - 17.30 h |
Location |
Theater
Diligentia |
Directions |
Speaker biographies
John E. Kwoka is the Neal F. Finnegan Distinguished Professor of Economics at Northeastern University. He is also a Research Fellow of the American Antitrust Institute, a member of the Board of Directors of the Industrial Organization Society, a member of the Editorial Board of the Review of Industrial Organization, and an ENCORE Fellow. Professor Kwoka received his PhD in Economics from the University of Pennsylvania, and taught at the George Washington University, the University of North Carolina at Chapel Hill, Harvard University and Northwestern University. He also served in various capacities at the Federal Trade Commission, the Antitrust Division of the Department of Justice, and the Federal Communications Commission. Professor Kwoka has written and consulted extensively on various issues in industrial organization, regulation, and antitrust. These include market power and concentration, sales and advertising practices, privatization, price cap regulation, joint ventures, and vertical integration. He authored Power Structure , a study of public vs. private ownership, vertical integration, and competition in the U.S. electricity industry.
Jan Tuinstra is Associate Professor of Economics at the University of Amsterdam, where he received his PhD in 1999. Tuinstra teaches advanced microeconomic theory and industrial organization. His interests include competition policy, industrial organization and public choice. His current research focuses on deregulation of network industries, cartel behavior and endogenous formation of special interest groups. Dr. Tuinstra is research fellow of the Tinbergen Institute and associate editor of the Journal of Economic Dynamics & Control . He publishes in leading international academic journals, including Economic Theory , Games and Economic Behavior , International Journal of Industrial Organization , Journal of Economic Dynamics & Control , Journal of Regulatory Economics , Public Choice and the Review of Financial Studies.
Sweder van Wijnbergen is Professor of Economics at the University of Amsterdam. Van Wijnbergen received his PhD in economics from the Massachusetts Institute of Technology (MIT) in Cambridge (USA) in 1980. Professor van Wijnbergen has been chief economist at the World Bank for respectively Eastern Europe, and Mexico and Latin America, as well as Secretary-General at the Dutch Ministry of Economic Affairs. He taught at international universities, including the London School of Economics and the University of Amsterdam and has advised governments, institutions, companies and banks on issues of taxes, pensions, financial reform and privatization. His research has been published in the top academic journals, including the American Economic Review , the Quarterly Journal of Economics and the Review.
