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Are Municipal Electricity Distribution Utilities Natural Monopolies?
Author(s) -
Filippini Massimo
Publication year - 1998
Publication title -
annals of public and cooperative economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.526
H-Index - 37
eISSN - 1467-8292
pISSN - 1370-4788
DOI - 10.1111/1467-8292.00077
Subject(s) - natural monopoly , electric power distribution , electricity , economies of scale , competition (biology) , consolidation (business) , electric power industry , distribution (mathematics) , economics , industrial organization , electric power , panel data , order (exchange) , market power , electricity market , service (business) , business , microeconomics , economy , power (physics) , econometrics , monopoly , finance , engineering , ecology , mathematical analysis , physics , mathematics , quantum mechanics , electrical engineering , biology
The purpose of this study is to analyse the cost structure of the Swiss electricity distribution utilities in order to assess economies of scale and density and the desirability of competition in the distribution of electric power. A translog cost function was estimated using panel data for a sample of 39 municipal utilities over the period 1988–1991. The results indicate the existence of economies of density for most output levels and the existence of economies of scale only for small and medium‐sized electric utilities. The empirical evidence suggests that franchised monopolies, rather than side‐by‐side competition, is the most efficient form of production organization in the electric power distribution industry. Further, the majority of the utilities analysed do not operate at an optimal service territory size. Therefore, the consolidation of small utilities whose service territories are adjacent is likely to reduce costs.