1. Competition issues in network industries
Russell pittman
Antitrust division, u.s. department of justice
Ukrainian competition forum
Kyiv, Ukraine, 2-3 march 2017
The views expressed are not necessarily those of the u.s. department of justice

2. Competition Issues in Network Industries
The issue: “natural monopoly” networks and potentially competitive services
Sector
Railways
Electricity
Natural Gas
Telecoms
Water
Network
Track and Infrastructure
Long-distance Transmission and Local Distribution Lines
Pipelines
“The Last Mile”: Wires to Homes and Businesses
Pipes
Potentially Competitive Services
Train Operating Companies (Freight and Passenger)
Generation
Exploration, Development, and Production
Internet, Cable TV
Extraction and Purification

3. The debate: competition? How?
Competition Issues in Network Industries
The debate: competition? How?
Assume networks are a natural monopoly – though this is not always the case
Can competition be created “upstream”?
Not always realistic, especially in electricity
Not always worth the effort, especially in water
If so, should the network operator be vertically integrated into service provision?
Mainstream economists: Of course not – it will always discriminate against independent providers
New institutional economists (and incumbents): Of course it should – otherwise lose valuable economies of vertical operation

4. Issues for the competition authority – and policy makers
Competition Issues in Network Industries
Issues for the competition authority – and policy makers
If network operator vertically integrated (or still affiliated) into services
Incentives for network operator to discriminate against independent providers
Price, but also terms of service
Details depend on sector, but detection and proof of discrimination often difficult
“Separate accounts” often tried, not always successfully
If network operator not vertically integrated into services
Network operator has a monopoly (though not always true monopoly power)
Thus incentives to charge high prices and offer inferior service.
Common strategy: require purchase of meters or other complementary products at unregulated prices
Addressing this is usually the regulator’s job, but if the regulator is weak, may fall to the competition authority by default
In some countries this is the most common type of “abuse of dominance” case brought by the authority

5. Promoting competition: as much art as science
Competition Issues in Network Industries
Promoting competition: as much art as science
Situation-specific application of standard competition agency tools
Sometimes requires finding the “binding constraint” on competition
Frequently this has to do with barriers to entry into the market
Two recent USDOJ case examples
US Air/American Airlines merger: settlement involved divestiture of “slots” in slot- constrained airports
NYC tour buses: settlement involved divestiture of permits for particular bus stops near major tourist attractions

6. Competition Issues in Network Industries
For policy makers (and competition authorities engaged in competition advocacy): some broader issues
Investment in the Network
Traditionally the “Achilles heel” of government-owned infrastructure
Look for ways to attract private investment
Does the “natural monopoly” actually have monopoly (or market) power?
Telecoms: Mobile and cable TV can compete for households, businesses
Railways: Motor carriers and water carriers can compete for much – not all – freight traffic
Sectoral issues: Electricity
Effective competition difficult without “plenty of cheap natural gas”
Sectoral issues: Railways
“Horizontal separation” has worked well in some countries
Sectoral issues: Water
Most important issue is often ancient, deteriorating network – creating competition for extraction and purification does nothing to address this