Monopoly power leads to higher prices.
Privatizers use the one-size-fits-all economic theory of “retail choice-free market competition” to promote the deregulation of Texas
electric utilities. Privatizers promise that lower electricity prices
and higher system reliability will follow electric utility deregulation.
Privatizers’ sloganeering convinces on-the-take politicians and the
unsuspecting electorate to approve their lobbyist-written deregulation
rules and laws.... Relative to U.S. electricity prices, Texas electricity prices during the
deregulation and privatization period (2002-2011) rise four times
faster than increases in Texas electricity prices before deregulation
(1970-2001). The Texas electricity market is much less efficient now as a
result of deregulation. Higher relative electricity prices after
deregulation are a liability for Texas residential electricity consumers
and put Texas at a competitive disadvantage compared with regulated
electric utility states when attempting to attract new industry and
jobs.
Has privatization failed Texas utility customers? - Electric Light & Power
The thing with electrical utilities is that it tends to be a natural monopoly. Therefore, governments can either keep the monopoly as an in-house provision or privatize it. Privatization is often chosen because it can be more cost effective. However, this market has a limited number of competitors competing for the utility contracts. Then, when a provider is selected, there is a high likelihood for contract renewal just because that's the tendency for these types of contracts (due to complex systems and infrastructure). Therefore, incumbency drives other competitors out of the area. Now, with a lack of competition and the likelihood for contract renewal high, utility providers gain a lot of power as a natural monopoly is produced. As a result, I am not surprised that the prices went up after the deregulation of the electrical utilities.
ReplyDeleteI am also not surprised at the price increases following privatization. With high barriers to entry in the utility market, it is difficult for other firms to reach a point where they can realistically be competitive with the preexisting dominant firm.
ReplyDeleteThis article also mentioned utility prices in the UK, which reminded me of the current problem that the UK is experiencing with rail ticket prices. Since the privatization of their rail system, prices have increased while quality and efficiency of rides have decreased. The article below from the guardian describes the problems with rail privatization the UK is experiencing, which are quite similar to the problems that Texas is experiencing with utilities. It also alludes to how there could be similar problems in a private or public nationalized healthcare system, which I found interesting following our previous discussions on national healthcare.
http://gu.com/p/36436/sbl