The regulation of privatized monopolies in the United Kingdom

Abstract

This article examines the experience in the United Kingdom with the regulation of privatized monopolies. Its conclusions are (1) that there are significant differences between RPI - X (or price-cap) and U.S. rate-of-return regulation, which provides greater scope for bargaining in the former system; (2) that U.K. regulators have taken seriously their duty to promote competition, but that the existing economic literature is of limited help in this task; (3) that price regulation is likely to be more effective where technology is changing slowly and/or where technology is changing rapidly; and (4) that the case for RPI - X price-cap, rather than rate-of-return regulation, is strongest in telecommunications, gas supply, and electricity supply and least strong in gas and electricity transmission grids.