Information disclosure, the baumol‐willig rule, and the “light‐handed” regulation of utilities in New Zealand

Abstract

Light‐handed regulation of “utilities” in New Zealand rests on the Commerce Act prohibition on dominant firms deterring competitors, and on the transparency facilitated by information disclosure, backed by the threat of price control. Its main thrust is to prevent an integrated incumbent from discouraging competition in related upstream or downstream contestable markets by denying access to its natural monopoly facility, or by granting access only at unreasonably high prices. The paper suggests that the threat of price control may, perversely, encourage power companies to cross‐subsidise, to the detriment of potential entrants, and that disclosure based on fully allocated costs may conceal that fact. Light‐handed regulation may promote market distortions.

Notes

Commerce Commission, Wellington.