Retail Electric Competition and Natural Monopoly

The electricity distribution and retail power industry has long been argued to be a natural monopoly, and its prices and conditions of service have generally been regulated by public utility commissions across the United States since the 1930s. In only 13 states can most consumers choose their electricity supplier, but even in those states electric power distribution is a publicly regulated monopoly. Jerry Ellig advances the discussion of competition in electricity markets. In both models he examines—one in which suppliers compete for retail customers on a regulated wire network monopoly and another with duopolistic competition between electric utilities with overlapping wire networks—additional competition is associated with cost reductions, lower prices, improved innovation, and more product differentiation.