public service commissions. To further complicate the picture, in electricity some providers of electricity -- the state and federal agencies which produce and distribute electricity and municipally-owned generation and distribution companies -- are self-regulated, at least with regard to their investment and retail pricing policies. The diversity of regulatory agencies which govern these industries has made the development of consistent policies toward competitive entry and deregulation much more difficult than would otherwise be the case.

The federal-state conflict, in particular, has produced serious obstacles to consistent regulatory reform. For example, in telecommunications, at least following divestiture, the FCC has pursued an aggressively pro-competitive regulatory policy, while the states have embraced competition more reluctantly. In large measure, this difference in policy reflects the mix of services over which state and federal agencies have principal responsibility. Thus, the FCC's principal responsibility is for interstate toll service which was widely regarded as a potentially competitive market and, hence, one for which rates were bound to decline as a result of competitive entry. On the other hand, state regulators are more directly responsible for customer access and local usage charges which, initially at least, were regarded as less likely to be competitive and, hence, subject to rate increases in the face of competition in the provision of services previously used to cross subsidize local usage charges. The difference in federal and state enthusiasm for competition can perhaps best be understood in this context.

### 6. THE ONGOING PROCESS OF REGULATORY REFORM

It is tempting in an evaluation of this sort to focus on the regulatory reforms which have occurred to date and to examine their consequences. While this approach may be feasible in airlines, where complete deregulation occurred at the outset, it seems both less relevant and less feasible in electricity and telecommunications, where regulatory reform is still evolving and where reforms initiated at the outset of the process have given rise to changes in industry structure which create pressures for still further reforms. In this case, it may be more useful to focus, as the essays in this book do, on understanding the ongoing process of reform in these industries. Of particular interest, in my view, is the tendency of initial tentative reform efforts to give rise to unanticipated changes in industry structure and behavior which then stimulate still further reform efforts. There is evidence of such evolutionary behavior in each of the industries examined in this book. Some of these evolutions are examined below.

#### 6.1. Airlines

Perhaps the three most interesting developments within airlines have been the emergence of the hub and spoke system, frequent flyer programs, and the alleged use of computer reservation systems to favor the airlines who developed them. In retrospect, all of these developments seem natural outgrowths of the intensely competitive environment created by deregulation. They represent efforts by the individual firms to expand demand, retain customers, and improve load