Energy

Electrifying Possibilities

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Natural gas, long distance phone service, airline, trucking, and rail have more in common with each other than one might suspect. All five are network industries, "producing some kind of product that must move along some form of infrastructure," says Jerry Ellig, an economist with the Center for Market Processes. And all were deregulated in the late 1970s and 1980s, resulting in substantial price reductions.

A new study by Ellig and Robert Crandall of the Brookings Institution estimates that opening up these sheltered industries to competition saves customers close to $60 billion annually. Airfares fell by nearly a third in real terms between 1977 and 1987. Rail rates fell by 44 percent in the 10 years after deregulation.

And these price drops occurred without any reduction in the quality of service. Instead the authors found that the deregulated industries expanded consumer choices and encouraged innovation, such as the hub-and-spoke airline system.

The success of these earlier deregulatory measures holds lessons for another network industry–the retail electricity market. "Policymakers concerned about consumers should open electric service to competition, deregulate rates, and promote consumer choice as quickly as possible," the authors conclude.

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