Generating the Benefits of Competition

Résumé du livre

The Study in Brief The move from regulation to competition in various sectors of the economy, from finance to air transport, has been one of the greatest success stories of the past three decades. [...] For competition to determine the default provider to benefit the buyers, the competition has to be held on the basis of selling price rather than on the basis of payments to be the provider. [...] But the appropriate price is likely to change during the term of the franchise, because costs and demand are unlikely to remain constant over the lifetime of the assets used to provide the default service. [...] However, demand exceeded 25 GW for only 32 hours out of the 8,760 in a year, not quite 0.4 percent of the time (IESO, 2007, 13).15 To recover the cost of installing that capacity, the price of electricity in those 32 hours would have to be many multiples of the price if the costs were spread over the full year. [...] The three factors determining market power are the firm's market share, the willingness of buyers to keep buying if the price goes up (inelasticity of demand) and the inability of competitors to offer more product if the price does goes up (inelasticity of supply).