There are inherent structural features of these industries that lend themselves to concentration, price discrimination, and the exercise of market power. The goal of public policy should be to provide maximum access to the large infrastructure networks and enhance rather than restrict consumer choice. But the simple process of deregulation will not assure this outcome. Major players will move aggressively to establish positions of dominance, and the longer regulators delay in introducing a clear set of market structure guidelines, the more difficult it will be to achieve this goal. Network economies arise from the joint production of multiple services on a network, savings associated with pooled reserves, economies of scale and scope, enhanced network functionality associated with increases in size, and the low incremental cost of adding more services.
Network economies require a minimum efficient size to be viable.
Coordination economies arise from successfully matching diverse usage or demand patterns with a capital intensive supply system. Coordination economies require a minimum efficient market share. Similar patterns of concentration are emerging among electricity marketers. Monopoly focal points arise because of the existence of bottleneck facilities that must be used to participate in network or coordination economies. At the same time that strong structural determinants promote industry concentration, a new set of utility management objectives has emerged with values quite different from those of the past.