Cross-Subsidies in the Electricity Sector

Bert Willems and E. Ehlers

Competition and Regulation in Network Industries, 2008, vol. 9, issue 3, 201-228

Abstract: Most firms in the electricity sector are vertically integrated. Often these integrated firms are accused of using income generated in the regulated sector in order to cross-subsidize their unregulated activities. This cross-subsidization is said to distort the level-playing field and lead to an unfair competition between incumbent and entrants. In this paper we argue that cross-subsidies are a normal business practice which should only be a concern when they are part of anti-competitive practice such as a price squeeze or predatory pricing. If the government is concerned about those practices, it should evaluate the sector using a similar analysis as developed under Article 82 EC, regardless of whether cross-subsidies are involved.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:sen:journl:v:9:i:3:y:2008:p:201-228

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