Retail Price Regulation in the British Energy Industry

Crampes, Claude and Laffont, Mathias (2016) Retail Price Regulation in the British Energy Industry. Competition and Regulation in Network Industries, 17 (3-4).

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Official URL: http://tse-fr.eu/pub/31334

Abstract

In this paper, we revisit the 2009-2012 episode in which Ofgem imposed a non-discrimination clause on large retailers in the UK energy market. The Standard Licence Condition 25A (SLC 25A) was introduced to prevent suppliers from charging their incumbent customers higher prices than their out-of-area customers. The SLC 25A included a “sunset clause”, to allow the condition to lapse three years after its implementation. Several IO economists protested that the prohibition of spatial price discrimination would eventually lead to competition weakening. At the end of the three-year period, Ofgem decided not to renew SLC 25A for any period. To further our understanding of Ofgem’s motives and its opponents’ arguments, we build a model where two local monopolists compete on a third market. We determine conditions where the obligation to set the same price in and out of the local market can result in a better or a worse situation for consumers. We show that even when the ban on price discrimination weakens competition, the average consumer can be better off.

Item Type: Article
Language: English
Date: 2016
Refereed: Yes
Uncontrolled Keywords: Price discrimination, Energy retail, Price regulation, Competition policy
JEL codes: L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
L41 - Monopolization; Horizontal Anticompetitive Practices
L94 - Electric Utilities
Q41 - Demand and Supply
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 13 Jan 2017 08:53
Last Modified: 07 Mar 2018 13:24
OAI ID: oai:tse-fr.eu:31334
URI: http://publications.ut-capitole.fr/id/eprint/22707

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