Riechmann, Christoph --- "Strategic Pricing for Network Access: Evidence from Electricity Distribution in England and Wales" [2003] ELECD 46; in Glachant, Jean-Michael; Finon, Dominique (eds), "Competition in European Electricity Markets" (Edward Elgar Publishing, 2003)

Book Title: Competition in European Electricity Markets

Editor(s): Glachant, Jean-Michael; Finon, Dominique

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781843761785

Section: Chapter 4

Section Title: Strategic Pricing for Network Access: Evidence from Electricity Distribution in England and Wales

Author(s): Riechmann, Christoph

Number of pages: 30

Extract:

4. Strategic pricing for network access:
evidence from electricity distribution
in England and Wales1
Christoph Riechmann

INTRODUCTION

Network access is an essential prerequisite for the constitution of compet-
itive retail markets in network industries, especially where networks exhibit
characteristics of natural monopoly (electricity and gas in particular).
Fears are that network owners exploit their monopoly position either to
foreclose downstream retail markets or to extract monopoly rents through
network access charges. Different regulatory options have been discussed
to prevent such behaviour: price regulation aims at limiting the profits of
network operators in the network business (partial price-cap approach) or
in the network business and in related competitive activities2 (global price-
cap approach). Legal unbundling of competitive activities and network
operations (in conjunction with price regulation of network activities) aims
at breaking joint interests of network operators with their related compet-
itive business segments.
This chapter extends a more formal analysis of possible strategic beha-
viour (Riechmann, 2000) and also explores technical limitations to such
possible action due to the inability of incumbent network operators to dis-
criminate between customers supplied by competitors and their own retail
business.
We outline the institutional framework of electricity retail competition
in England and Wales which serves as reference for the following theoreti-
cal considerations and empirical investigations. In the third section we
briefly review recent literature on the regulation of network access. We then
address the incentives for strategic discrimination of network access
charges. Next are assessed opportunities and limitations to discrimination
of ...