Regulating Monopolies: A History of Electricity Regulation

Prof. Lynne Kiesling discusses the history of regulating electricity monopolies in America. Conventionally, most people view regulation of monopoly, such as the Sherman Antitrust Act, as one of government’s core responsibilities. Kiesling challenges this notion, and finds that government regulation of monopoly actually stifles innovation and hurts consumers.

The American electricity industry was booming in the 1890s, with several small firms competing against one another. Over time, Kiesling argues that the fixed costs began to escalate, increasing the cost of entry into the industry. Put another way, large competitors gained a significant competitive edge over smaller competitors through economies of scale. Eventually, in places like New York and Chicago, Kiesling claims that the competitive process led to one large firm.
These monopolies were feared by the public, and led to demands for government regulation. The electricity industry, knowing that regulation was coming, used these demands for regulation as cover to construct legal barriers to entry. Ultimately, the regulations passed by the government reduced competition by granting legal monopoly privileges to powerful firms within a certain geographical territory.
In modern times, we are seeing the real cost of these old one-size-fits-all regulations:
  1. People aren’t adjusting their energy consumption behaviors. For instance, in peak hours, technological solutions that could smooth electricity consumption are being ignored.
  2. The electricity industry doesn’t evolve and account for new types of renewable energy.
  3. Innovations have been discouraged.
If these archaic regulations were removed, innovations and improvements beneficial to consumers would flourish.

6 Comments

  1. Matt Wavle

    The feedback loop is disrupted when the state gets involved.  In the long run it’s hurtful to both consumers and producers.  Consumers still pay higher prices, but they are hidden and shifted into higher taxes, that are then used to subsidize prices lower than real market prices.

  2. Yotsuya

    This is a really great video, I’m sorry to not see any comments on it. I would just like to say that its worth your time to see it, and to share it. 

  3. Damian Robinson

    I wonder if we could go back to a free market system on utilities or is the red tape so thick we have to have a modified version of the market.

    This is why the power grid in this country is so antiquated .
    There’s no incentive to innovate.
  4. asexymind

    Don’t worry, its only the electricity and energy sector of our economy. Regulations that reduce innovation in this area won’t matter much to the development of our economy or anything… ARRRGH!

  5. Justin Jones

    It’s more remove all the federal regulations that limit this check out the redefining of the commerce clause by the Supreme Court.

  6. Lukas Koube

    honestly? i dont buy it. the model she spoke about can describe nearly any company….it costs millions to set up a walmart, but very little to serve 1 additional customer who walks into a walmart….does this mean we should hand over a monopoly to walmart in order to guarantee that there will be food on the shelves? 

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