Working paper

Economic Regulation of Network Industries (WP 00/05)

Authors: Brian Williamson and Yogita Mumssen


This report was commissioned by Treasury in February 1999 as an input into its ongoing work programme on the regulation of network industries.

Network industries are characterised by long-lived investments and increasing returns to scale. This raises two related concerns - protection of consumers from monopoly abuse and protection of investors from opportunistic behaviour by governments. This report reviews the underlying problems of economic regulation of network industries. In particular, it discusses the problems of monopoly and regulation, the objectives and principles of good regulation, the trade-offs that regulation must deal with, and international experience with network regulation in the UK, the US and Australia.

Conclusions of the paper include that regulation should provide incentives for short and long-term efficiency, and that regulation should be based on the principles of openness, transparency, consistency and accountability.