Public Policy: Using Market-Based Approaches - Department for ...

Public Policy: Using Market-Based Approaches
Littlechild (2003) notes that there are costs and benefits to both regulation and
competition in network industries. For example, Littlechild makes reference to
the transactions costs of competition, including the costs to customers of
understanding the differing and more rapidly changing prices and of choosing
between the ever-changing options available, and the difficulties and time taken
to contact the relevant companies and deal with problems when they arise. This
must be balanced against the benefits that deregulation and restructuring can
bring in terms of increasing cost transparency, i.e. improving information in the
industry.
Newbery (2001) queries whether the costs of competition in the case of
electricity generation were worthwhile. Whilst the benefits are real, so too are
the costs of spare capacity, of the creation of new market trading arrangements
and the risks to service quality posed by unbundling.
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