Understanding Network Industries and Their Evolution

Network Industries

For almost a century, network industries were organized as state monopolies. Because of the importance of these industries from general viewpoints, governments believed it was essential to consolidate them in one firm due to strategic economic and political reasons. Consumer organizations started to complain about the poor performance of public monopolies; they claimed that competition was the best way to induce better prices, improve quality of service, and stimulate innovation.

Natural Monopoly is a type of monopoly that exists as a result of the high fixed or startup costs of operating a business. Universal Service Obligation (USO) refers to a service provided to everyone irrespective of their location at an affordable rate and set price. Liberalization is a very broad term that usually refers to fewer government regulations and restrictions in the economy in exchange for greater participation of private entities.

Three Pillars:

• Remove the exclusive rights granted to certain companies.
• Liberalization directives had to establish a regulatory framework.
• Requires the application of competition rules, which are to be used in support of the market opening process.

Problems: Country asymmetries and industry asymmetries.

Industrial Policy in the EU is about creating the right environment for industry to thrive:

• Stimulating innovation and competition.
• Guaranteeing a level playing field in the single market and outside of it.
• Reducing frictions and transaction costs in the European economy.

Types of Industrial Policy:

• Market-based (negative) industrial policy.
• Interventionist (positive) industrial policy.
• Selective intervention or strategic industrial policy.

Types of Industrial Policy:

• Horizontal: Establishment and maintenance of a competitive and regulatory framework for all industries, including education and training.
• Vertical: Select specific industries and provide special treatment.
• Mixed: Select key industries for special treatment and provide a better competitive and regulatory framework.

The USA, Germany, and the UK provide more market-based horizontal policy, while France and Italy focus more on interventions and vertical policy.