The opening up of the network industries to competition: regulatory aspects and effects on prices

Mª de los Llanos Matea

Economic Bulletin, 2001, issue JUL, No 3, 67-77

Abstract: The network industries cover a wide range of activities such as electricity, gas, information (sound and images), water, freight and passenger transport. All of these are of great significance in the current economy, as much of the technological progress made in recent years is channeled through them. What are involved are industries that have traditionally operated under limited degrees of competition owing, above all, to the presence of sizeable economies of scale and of natural monopoly factors. The monopolistic organisation of these activities first began to be re-assessed in the Anglo-Saxon countries in the eighties. This review was due, among other reasons, to the influence of technological changes altering their modus operandi and to the possibility of singling out activities in the same industry, as well as to the strong increase in demand to which they have been subject. In Europe, the development of the single market also boosted the liberalisation of the network industries, albeit at an uneven rate across countries. Spain has participated in this process, significantly amending and adding to the regulation of various industries, including energy and telephony. The experience of the different countries shows that heightened competition in the network industries reduces prices, improves quality, widens the supply of goods and services, and increases efficiency in the allocation of resources. Further, the use of the goods and services produced by these industries as inputs for other productive branches enables the initial fall in prices to bring about significant synergies, whereby the gains in efficiency and the reduction in prices spread to other sectors of the economy. The contribution of the ongoing liberalisation of these industries to price stability and to growth in recent years has therefore been most considerable. This article, which seeks to provide information on the process in recent years whereby these industries have been opened up in Spain, is structured as follows. The following section briefly refers to the most significant regulatory aspects raised by the opening up to competition of the network industries and discusses the regulation-based initiatives that seek to smooth the co-existence of monopoly activities with those conducted on a competitive footing. The third section discusses how these matters have been resolved in Spain. The fourth section analyses certain direct effects on consumer prices of heightened competition in the air transport, telecommunications and electricity industries, comparing their performance in Spain and in the euro area. The fifth section performs a simulation with the Input-Output tables to assess the impact of the some of these industries on output prices in the Spanish economy. The article closes with some brief conclusions.

Date: 2001
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