NATURAL MONOPOLY

The electricity supply industry is highly capital-intensive, whose success depends critically upon the management of its investment. In most developing countries investment is poorly managed, poorly maintained, and often inadequate. Inadequate regulation or political control lead to low prices that undermine the finance of investment and give poor incentives for management and operation. The paper argues that regulation must be

The problem of access arises in industries where inputs from monopolistic and competitive markets are complementarily needed to provide a service. In these circumstances, the firm controlling the monopolistic segment has incentives to deter competition in the competitive segments (markets) to recover profits foregone by regulation (Paredes, 1997). In the port industry, for example, a number of services need to be jointly provided to complete the logistics chain: pilotage, towage, stevedoring, storage, etc. Without any of these, cargo cannot be delivered. In ports where a terminal constitutes a natural monopoly, an integrated terminal operator has incentives to deter competition in the markets of services that are necessary to complete the logistics chain, since this would allow him to charge disproportionate prices and extract monopolistic rents. This strategy can be implemented by preferential treatment to itself or sister companies, or by restricting competitors access to the term...

Financial intermediation and financial services industries have undergone many changes in the past two decades due to deregulation, technological advances and globalization. The framework for regulating finance has seen many changes as well, with approaches adapting to new issues arising in specific groups of countries or globally. The objectives of this paper are twofold: to review current international thinking on what regulatory framework is needed to develop a financial sector that is stable, yet efficient and provides proper access to households and firms; and to review experiences regarding international financial architecture initiatives, with a special focus on issues arising for developing countries. The paper outlines a number of areas of current debate: the special role of banks, competition policy, consumer protection, harmonization of rules⎯across products, within markets and globally and the adaptation and legitimacy of international standards to the circumstances facing developing countries. It concludes with some areas where more research would be useful.

This paper provides necessary and sufficient conditions for the existence of a pure strategy Bertrand equilibrium in a model of price competition with fixed costs. It unveils an interesting and unexplored relationship between Bertrand competition and natural monopoly. That relationship points out that the non-subadditivity of the cost function at the output level corresponding to the oligopoly break-even price, denoted

Abstract: In the late 1990s, many U.S. states deregulated electric utilities, allowing for competition among power generators. Deregulated states then adopted retail choice programs, allowing customers to choose their power provider.  In addition, a significant merger wave among large utilities ensued. How did these events impact consumer welfare?  This study examines the effects of utility deregulation and mergers, by analyzing electricity price and output changes among deregulated and regulated states. I find that deregulation may have had a positive effect when states adopted certain measures, such as retail choice or fuel changes, that enhanced competition and lowered costs. Mergers also affected consumer welfare, with differential impacts found between the merger of generation firms versus the merger of generation and transmission companies.

This article describes the recent changes in the area of sourcing and spend management and it is in line with current calls for more efficient ways to source raw materials and (semi-) finished products and to compare prices of different products versus the market prices. The comparison versus market prices via the traditional tendering process became unusable nowadays as a consequence of the high price volatility since the financial crisis of 2008. We propose new sourcing techniques and new benchmarking techniques already used in a meta-search database containing more than 7,5 billion data points that can be used to determine quickly the supply sources and the value performance of the purchase of a product. This search process includes prices and price comparisons for more than 15000 raw materials, semi-finished products and finished products and is among others based on institutional data.

The current world of is fundamentally different from the one we lived in for the past. The major difference is a steep increase in “bottleneck and partnership products” (Kraljic, 1983, Nellore and Söderquist, 2000; Araujo et. al., 1999) to be supplied as the number of suppliers, the number of available products and the quality of the remaining supply all become more critical and buyers are faced with less suppliers than before spread all over the world and outside their home country. Yet, when time is of the essence, looking for those alternatives, which have moreover become scarce, might just take too much time. Efficient benchmarking might be helpful in this respect. Because of the time pressure, tendering becomes too time consuming and slow. Companies need tools to evaluate and assess opportunities in the market. In the remainder of the paper, we focus on one of these tools, the YQ Matrix. The YQ Matrix (www.YQmatrix.com) is a freely available tool that gives consolidated results in a number of predefined graphs and figures. Typically, these graphs include country, product, user and time-specific information. The YQ Matrix offers quick sourcing and price performance monitoring and makes it possible to have alternative solutions to the ones proposed by Kraljic (1984). The proposed gap procurement performance value makes it possible to do “Creative Time Procurement” since gap analysis enables better procurement timings. Furthermore, standardized sourcing graphs make it possible to do “Creative Geographical Procurement” (Faes and Decocq 2010), two elements that have become a necessity in creative procurement tools.

The IT platform provides the frame and the structured approach for mass data collection and validation.
1. Country selection. The simplest way would be to see if and how much products are traded to or from a specific country. Data can be collected and analyzed from more than 250 countries and dependencies, based on real life data. If desired, countries could be excluded from the analysis. The rationale underlying the country selection as a starting point for the analysis is the following: Instead of analyzing the production potential that might be available somewhere, you initially analyze what peers are already buying/selling on the market. This sourcing tool works under the assumption that if business is already happening there today, price, quality and other elements must be in favor of such procurement business.
2. Detection of emerging markets.
3. Detection of highest volumes and corresponding prices.
4. Detection of lowest prices and corresponding volumes.
The four-step approach has a number of advantages compared to more traditional tools and market research activities. Firstly, the speed of the research is increased drastically. By means of a few clicks and five minutes work, results can be obtained. For an update once the graphs are set, it’s only a matter of seconds. Compared to traditional market research taking each time many weeks, this is a large saving on man-hours. Secondly, the data obtained is objective and precise. Data is retrieved among others from official country statistics and international organizations that provide statistics. Thirdly, the official country statistics and international organization data is updated monthly, the user data is updated daily. Finally, compared to a traditional market study, which is a snapshot of reality, the data shows a truly longitudinal effect.
Procurement performance monitoring
Knowing where to buy is important, but knowing how well you perform is perhaps even more essential. The recent economic crisis has prompted many companies to closely evaluate their spend. This is not a new phenomenon and analyzing the spending exists just as long as purchasing itself, but recently there is particular emphasis on two different fields: the first one is the search for savings opportunities that are present within the company (spend analysis). Recent studies show that companies can save on average 11% of their purchase spend if they use a modern spend analysis system (Aberdeen Group Research, 2008). Even without these systems, purchasing managers could save money by consolidating and analyzing their purchases and supplier base. The second field is benchmarking. Increasingly, purchasing managers are looking outside their own company for ways to save money. Typically, companies are comparing their purchasing performances to the performance of other companies. This process, however, is not as easy as it sounds and involves a lot of data collection and data manipulation in order to get a result that is interpretable and useful for companies. In order to use the data available in the YQ Matrix, we propose a two-step process.

Step 1. Price gap analysis expressing the “price” performance

The price gap analysis is all about measuring and understanding the price delta over time. This delta is the difference between the price that you paid or currently pay and the price that are calculated via benchmark data. These benchmark data could include an index, a combination of relevant prices for the same product, or a combination of prices of different products that compose another product.  Crucial in the information from the benchmark tools is that the gap evolutions are shown. With the latest worldwide internet evolution, prices are not secret anymore. You can find almost all of them on a wide variety of websites. It is the way to achieve them that is proprietary and this achievement progress over time can best be measured through the price gap analysis.
Step 2: Price gap evolution expressing the “value” performance
The price gap evolution is the difference between the average six months price gap and the subsequent price gaps multiplied by the actually purchased volumes showing the procurement performance value versus market. This step quantifies the procurement efforts into an absolute value expressed in the practitioner’s currency.
The price gap analysis and price gap evolution have multiple advantages compared to the traditional approaches. First, companies can measure the gap on a structural basis and not only occasionally. This allows companies to have a structural follow-up of their procurement performance. Second, traditional gap analysis does not always take the volume actually purchased into account. The build-in of the purchased volume is a must. Indeed, a major price gap on ten tons purchased will hardly offset an earlier bad price gap on thousand tons purchased.
From a data collection perspective, there is less bias and manipulation by the market (e.g., compared to market prices assembled via telephone or e-mail). Each graph created on the database and defined as visible to other users is subject to voting by other users (“Like”, “Dislike”, “No opinion”). Whereas this type of crowd voting has so far been used on social media like Facebook, Twitter, … to express an opinion on a topic, the approach here is new as it is used to validate the reliability of the data. This means the YQ Matrix is not only valuable for the industry, but also for the institutional and academic world striving for data confirmation from multiple sources to carry out their academic and institutional studies.
Finally, similar to the four step country selection proposed earlier, results are reached faster and time invested is lower. Especially when prices are volatile, a thorough understanding of the market is necessary. The monitoring tool presented provides a short and long term visibility from which price seasonality and best buying times can be more easily deducted. In this way, it adds to the creative time procurement since it might be better to buy more expensive than the market at the right time than to buy the cheapest at the wrong time.

" La grande stagione delle privatizzazioni ha sì lasciato la gran parte delle attività dismesse in mani italiane, ma a costo di indebolire lo slancio competitivo di importanti pezzi dell'industria, offrendo occasioni di più facili profitti " (Giangiacomo Nardozzi, Il Sole 24 ore, 20/10/2002)

This article describes a recent trend in the area of sourcing and spend management which is in line with current calls for ways to source raw materials and (semi-) finished products more efficiently. It also covers a new approach to compare prices of different products versus the market prices as the traditional tendering process became unusable. The latter is a consequence of the high price volatility brought about by the financial crisis of 2008. We propose sourcing and benchmarking techniques that are already used in a meta-search database – www.YQmatrix.com - containing more than 7.5 billion data points. These can be used to quickly determine the supply sources as well as the value performance of the purchase of a raw material or a (semi-)finished) product. This search process includes prices and price comparisons for more than 15,000 raw materials, semi-finished products and finished products (http://www.YQmatrix.com/products.php). Login creation is free of charge (http://www.Y...

Competitive markets could yield socially optimum results, but although market fail in many cases. If the regulation is successful in generating competition or in replicating its incentives, the next problem to solve is to face the inherent tendency of the competition dynamic toward concentration, cartelization or monopolization of the markets. Mechanisms to ensure or to preserve competition gain importance. Regulation could be conceived as an evolutionary process starting in natural monopoly regulation and ending in competition policy. In many cases, competition is infeasible with the current state of the technology (such as in water and sanitation), whether in other infrastructure sectors it can be possible (such as in segments of telephony or power generation. Regulation is compatible with state provision, and there can be separated the provision, control and supervision of the providers, even when the former are in public hands. Normally tariffs are regulated in infrastructure sectors, also quality and safety standards. Regulation nevertheless is a second best device, since it is costly. We develop a list of topics on market failures, natural monopoly, information problems, different kind of regulatory mechanisms, access prices, the basic Ramsey model of prices, applied to regulation, universal service obligation, the quality of product and service regulation, cost of capital in regulated industries, efficiency and benchmarking, and we conclude discussing the link between infrastructure and growth. Índice Introducción Capítulo 1: Fallos de mercado y problemas informativos: justificación técnica de la regulación Capítulo 2: Existencia y estabilidad del monopolio natural, tecnología y subsidios cruzados Capítulo 3: Problemas de información y su incidencia en los contratos Capítulo 4: Regímenes regulatorios de distinto poder de incentivo.

We use laboratory experiments to evaluate how contestability fares in a situation where the entrant and the incumbent have their own home markets and opportunities to enter each other's markets. The disciplining effect in contestable markets depends crucially on hit-and-run entry. If both the entrant and the incumbent firm have their own home markets then the entrant might not like to hit-and-run.

"Economics of Natural Gas Transportation".  Research Report no. 53  Lillehammer College August  2000. 64 pages.  ISSN 0807-2647  ISBN 82-7184-2269

This report demonstrates that the existence of significant economies of scale and scope in the European gas industry make many transmission and local distribution companies natural monopolies in the markets in which they operate. Often, this gives them a strong market power and little competitive pressure. Substantial parts of the rent in the gas chain are accrued in the transportation segment rather than in production and/or to the benefit of consumers. This gives reason for public interventions into the functioning of the market, as seen under the initiatives taken by the European Commission, such as the “Gas Directive”. The report discusses gas transport regulations; arrangements that goes beyond the present EU initiatives. No schedule seems to secure any first-best outcome. However, different types of multipart tariffs and price discrimination under Ramsey principles may bring about social acceptable second-best results. The complexity of regulations and the huge interests at stake make it doubtful that such regulations are attainable throughout Europe in the coming decade. The report discusses a game between a public authority and the transporters where various level of conflict and cooperation will influence how far regulations will go and how they will be designed. Changing property rights (nationalization) and the use of market forces is discussed as alternatives to regulation.

This is especially true in telecommunications where, for political reasons, socialist governments tried to restrict the publics access to the means of production and dissemination of information. Competition policy for natural monopolies in a developing market economy Antimonopoly Law Handbook

ABSTRACT: The aim of this article is to explain the pattern of public enterprise in Western Europe, Japan and the USA in the late 20th century, just before the onset of privatization. This requires an examination of the origins which date from the early 19th century. A common misconception is that public enterprise was a device for overcoming problems of natural monopoly and/or a socialist instrument for mitigating worker exploitation. It is argued that the former was mainly dealt with by arms’ length regulation and that socialist forces were limited. Public enterprise was common in grid networks everywhere and, in manufacturing, more common in Germany, Spain, Italy than elsewhere. Why also were the USA and UK (up to 1939) different and what does the privatization experience tell us about public enterprise? The answer is that public enterprise was often an instrument for promoting social and political unification, securing national defence and related strategic considerations, increasingly in the 20th century for promoting economic growth, with regulatory failures and socialist pressures playing a more subsidiary and/or occasional role.

ABSTRACT Providing and marketing professional artistic services is a profitable business. But the competition for stars and audiences is subject to market failure. There are two potential sources of market failure that are highlighted in the present paper. The consumption of artistic services creates a positive externality for the star: popularity. In addition, the organization of artistic performances has features of a natural monopoly. Different institutional designs for providing organizational services are discussed. It turns out that as long as organizers are safeguards of the audience, the market is efficient. An unambiguous ranking of the welfare properties of private vs. regulated monopolies is not possible. A private monopoly might be preferable to a regulated average-cost-pricing monopoly on efficiency grounds.

This article analyzes the pros and cons of ownership separation of the gas transportation network. This analysis is made with a specific test that confronts two pairs of different theoretical approaches on vertical integration. The result of this test shows that no uncontroversial solution can be offered to this problem, since all arguments (be them in favour or against) can be comfortably contrasted by a counterargument. In our view, an effective regulation would solve the problem, even though it has to be highlighted that ownership separation of the gas transportation network is not the key aspect of the gas industry. EU directives, in fact, cannot be applied where the biggest part of the value chain is produced, that is to say beyond the European borders, where an oligopoly operates. Due to its bargaining power, this oligopoly captures almost all the scarcity rent, reducing the scope for market liberalization.

management team, and Country Management Units in the South Asia region. In addition, Marianne Fay (SDN, Chief Economist), Vivien Foster (SEGEN, Sector Manager), and José L. Guasch (Consultant) provided insightful and constructive comments through their capacities as peer reviewers. Financial support from SAR Chief Economist Office and the Australian Government is also gratefully acknowledged. Senior authorship is not assigned. The findings, interpretations, and conclusions expressed in the reports and outputs under this initiative are those of the authors, and do not necessarily reflect the views of the Executive Directors of The World Bank, the governments they represent, or the counterparts that were consulted or engaged with during the informal study process. Any factual errors are the responsibility of the team.

This paper derives equilibrium government policies towards parallel imports in a North-South model where the Northern …rm produces high quality and the Southern …rm produces low quality. Given policies, each …rm decides whether or not to serve the other country's market. If Northern consumers have su¢ ciently higher preference for high quality, the Northern government forbids parallel imports and international price discrimination obtains: when the threat of indirect competition from arbitrage-induced parallel imports is absent, …rms choose to directly compete in both markets. If demand structures are relatively similar across countries, the North permits parallel imports and uniform pricing obtains.

Financial intermediation and financial services industries have undergone many changes in the past two decades due to deregulation, technological advances and globalization. The framework for regulating finance has seen many changes as well, with approaches adapting to new issues arising in specific groups of countries or globally. The objectives of this paper are twofold: to review current international thinking on what regulatory framework is needed to develop a financial sector that is stable, yet efficient and provides proper access to households and firms; and to review experiences regarding international financial architecture initiatives, with a special focus on issues arising for developing countries. The paper outlines a number of areas of current debate: the special role of banks, competition policy, consumer protection, harmonization of rules⎯across products, within markets and globally and the adaptation and legitimacy of international standards to the circumstances facing developing countries. It concludes with some areas where more research would be useful.

This paper studies the efficacy of entry threats in a contestable environment using experiments. It is hypothesized here that the entrant firm’s home market profits influence the entrant’s competitive behavior even when entry is costless and completely reversible. In the experiment, entrants and incumbents tacitly collude when each has its own monopoly market. In contrast, an entrant from a competitive market practices hit-and-run entry whenever such opportunities exist, forcing the incumbent monopolist to price at average cost. The experiment results suggest that the usefulness of hit-and-run competitive threat in a contestable environment depends crucially on the relative profits in the entrant’s and the incumbent’s home and entry markets.

We analyze Bertrand's price competition in a homogenous good market with a fixed cost and an increasing marginal cost (i.e., with variable returns to scale). If the fixed cost is avoidable, we show that the non-subadditivity of the cost function at the output corresponding to the oligopoly break-even price, denoted by D(pL(n)), is su±cient to guarantee that the market supports an equilibrium in pure strategies with two or more active firms supplying at least D(pL(n)). Conversely, the existence of a pure strategy equilibrium ensures that the cost function is not subadditive at every output greater than or equal to D(pL(n)). As a by-product, the latter implies that the average cost cannot be decreasing over the range of outputs mentioned before. In addition, we also prove that the existence of a price-taking equilibrium is sufficient, but not necessary, for Bertrand's price competition to possess an equilibrium in pure strategies. This provides a simple existence result for th...

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. As in other sectors, competition in finance matters for allocative, productive and dynamic efficiency. Theory suggests, however, that unfettered competition is not first best given the special features of finance. I review these analytics and describe how to assess the degree of competition in markets for financial services. Existing research shows that the degree of competition greatly varies across markets, largely driven by barriers to entry and exit. I argue that changes in financial services industries require updated competition policies and institutional arrangements, but that practices still fall short. Furthermore, I show that developing countries face some specific competition challenges.

In this paper, we discuss the choice for build-operate-and-transfer (BOT) concessions when governments and firm managers do not share the same information regarding the operation characteristics of a facility. We show that larger shadow costs of public funds and larger information asymmetries entice governments to choose BOT concessions. This result stems from a trade-off between the government's shadow costs of financing the construction and the operation of the facility and the excessive usage price that the consumer may face during the concession period. The incentives to choose BOT concessions increase as a function of informational asymmetries between governments and potential BOT concession holders and with the possibility of transferring the concession project characteristics to the public authority at the termination of the concession.

This report demonstrates that the existence of significant economies of scale and scope in the European gas industry make many transmission and local distribution companies natural monopolies in the markets in which they operate. Often, this gives them a strong market power and little competitive pressure. Substantial parts of the rent in the gas chain are accrued in the transportation segment rather than in production and/or to the benefit of consumers. This gives reason for public interventions into the functioning of the market, as seen under the initiatives taken by the European Commission, such as the "Gas Directive". The report also discusses gas transport regulations; arrangements that goes far beyond the present EU initiatives. No schedule seems to secure any first-best outcome. However, different types of multipart tariffs and price discrimination under Ramsey principles may bring about social acceptable second-best results. The complexity of regulations and the huge interests at stake make it doubtful that such regulations are attainable throughout Europe in the coming decade. The report discusses a game between the public authority and the transporters where various level of conflict and cooperation will influence how far regulations will go and how they will be designed. Changing property rights (nationalization) and the use of market forces is discussed as alternatives to regulation.

N CLEVELAND, OHIO, A LEGAL CONTROVERSY HAS DEVELOPED which compels the judiciary to evaluate the limits of competition.' Seventy years of head-to-head combat between a large investor-owned electric system and a smaller city-owned company has entered the federal courts as an issue to be resolved under section two of the Sherman Act. 2 The precise issue is whether a refusal by the larger utility to sell or wheel power to the smaller utility constitutes an illegal act of monopolization. To resolve this issue, the judiciary must superimpose upon a stormy political dispute 3 an abstract formulation of proper and

Public utility regulation arose naturally in the nineteenth century for gas, water, rail, telegraph, and later, electricity and telephony because these utilities require a fixed network to deliver their services. These networks need access to rights of way which requires community or government approval, while the network is a natural monopoly that precludes efficient competition and confers potentially exploitative power on the owner that will inevitably lead to political demands for restraint. The durable, costly and irrecoverable nature of the network raises the fear that curbs on prices will prevent the investor recovering a fair return on his investment. Regulation evolved to balance the interests of investors and consumer/voters. Where a satisfactory balance could be achieved, utilities could remain under regulated private ownership. If private investors lacked confidence that they would be allowed to earn an acceptable return, or if the polity believed that it could secure a more satisfactory distribution of the benefits of the public utility, the outcome was public ownership. Britain and the US exemplified different solutions to achieving this balance of interest. Historically regulation arose as part of the contract with municipalities, who granted rights of way in exchange for quality standards and curbs on prices, starting with coal gas and piped water. Coal gas lowered the cost of lighting by two-thirds when introduced in Britain in 1806 (Falkus 1982). This appealed to municipalities, who granted the right to lay pipes and disturb roads in exchange for concessional street lighting. Economies of scale gave monopoly power and high profits to the first entrant. Early attempts to regulate prices were ineffective in Britain, and profits could only be restrained by entry, which created obvious inefficiencies-by 1850 London had 14 gas companies (Foreman-Peck and Millward 1994: 30). In such a competitive environment, quality suffered, often with lethal consequences, making municipal ownership look increasingly attractive. The appeal of municipal ownership was that it kept prices reasonable, while the profits financed other local public goods and reduced local taxes. Parliament responded by creating limited life private franchises, which at their end could be bought at written-down cost by municipalities. By 1907, one-third of the net output of gas companies was public, as were 57% of trams, 64% of electricity, and 81% of water companies (Foreman-Peck and Millward 1994), and eventually all public utilities were nationalized. The US evolved a different institutional solution for these utilities. Initially, most cities offered a contractual franchise, starting with the introduction of gas in New York in the 1820s (Priest 1993). These contracts typically provided for access to public rights of way and a franchise monopoly in return for restraints on prices and concessional terms for supplying the municipality. The contracts were typically for 20-30 years, long enough to repay the large capital investments. Inevitably, they had to be renegotiated as circumstances changed. Soon contracts made explicit provision for renegotiation, subject to arbitration, Palgrave

The paper studies the impact of government budget constraint in a pure adverse selection problem of monopoly regulation. The government maximizes total surplus but incurs some cost of public fundsà la Laffont and Tirole (1993). An alternative to regulation is proposed in which Þrms are free to enter the market and to choose their price and output levels. However the government can contract ex-post with the private Þrms. This ex-post contracting setup allows more ßexibility than traditional regulation where governments commits to both investment and operation cash-ßows. This is especially relevant in case of high technological uncertainties.

In this paper, we discuss the choice for build-operate-and-transfer (BOT) concessions when governments and firm managers do not share the same information regarding the operation characteristics of a facility. We show that larger shadow costs of public funds and larger information asymmetries entice governments to choose BOT concessions. This result stems from a trade-off between the government's shadow costs of financing the construction and the operation of the facility and the excessive usage price that the consumer may face during the concession period. The incentives to choose BOT concessions increase as a function of informational asymmetries between governments and potential BOT concession holders and with the possibility of transferring the concession project characteristics to the public authority at the termination of the concession.

This paper examines two important recent developments in the theory of natural monopoly, or more generally the theory of market structure. The first is a series of papers, involving Baumol with various co-authors, investigating the theory of industry structure, whilst the second is particularly associated with the names of Shaked and Sutton, and the relationship they develop between product differentiation and industry structure. The paper surveys and to some extent contrasts these two new approaches. Baumol ef al.'s contribution is seen to be in the area of clarifying the concept of qatural monopoly, refining the definitions of multiproduct costs, and developing a notion of social efficiency applicable t o industries where economies of scale are important. Shaked and Sutton employ a new definition of natural monopoly unrelated to market size and utilize information about consumers' income distributions to develop their notion of vertical product differentiation and natural oligopoly.

COMM/ENT [Vol. 4 rules exceeded the Commission's authority, but did not address the issue of their constitutionality, except to say that the question was "not frivolous."8 The unresolved issue of the constitutionality of governmentmandated access to cable television systems must still be faced. Even if the federal government does not reimpose the rules,9 several states have already enacted their own access requirements. 10 This article will examine whether such requirements by a state violate the First Amendment rights of the cable television operator. l l Many commentators have assumed that the primary focus of such an analysis must be a determination of whether cable television is "like" a newspaper or "like" a television broadcaster, followed by a routine application of the appropriate constitutional standard. 12 This approach is both simplistic and needlessly subjective. The proper inquiry must be whether a cable access rule, "abridges expression that the First Amendment was meant to protect."13 Accordingly, the effect of an access requirement on the various interests served by the First Amendment will be examined. It will be demonstrated that those interests are furthered substantially by such a requirement, and in a manner which is not inconsistent with the Constitution. 14 8. Midwest II, 440 U.S. at 709 n.l9. 9. The Supreme Court stated that the question of ''whether less intrusive access regulation might fall within the Commission's jurisdiction ... is not presently before this Court." Id. at 705 n.14. 10. E.g., CONN. GEN. STAT. § 16-333(c) (Supp. 1981); MINN. STAT. ANN. § 238.05(b) (West Supp. 1981). California permits cable companies to be free from rate regulation only if certain criteria are met, one of which is provision of public access channels.

This paper considers the efficiency of a contestable natural monopoly if consumers are heterogeneous and the monopolist can differentiate prices imperfectly. The paper shows that a ''no-distortion-at-the-top'' result, which is standard in models with restricted entry, may also appear in a contestable market. Depending on cost and demand structures, first best efficiency can also be a sustainable equilibrium. However, due to the existence of a continuum of equilibria, first best efficiency is not guaranteed. Most notably, even a stable ''distortionat-the-top'' result is possible.

I study the effect of sunk entry-costs on potential competition in a multi-market framework, where potential entrants have different home market profits. Although sunk-entry-costs are supposed to increase entry barriers, my experimental results suggest that firms view entry costs differently depending on their home market profits. I find that subjects are reluctant to enter, and compete in another market if they are already earning monopoly rents. Subjects instead, collude tacitly and earn monopoly rents in home markets, thereby weakening the effect of potential competition. In contrast, subjects who earn small secure returns in their home markets aggressively enter the contestable market whenever there are scopes for earning net profits. The threat of entry and the effects of potential competition are strong in the latter situation, forcing the monopoly incumbents to lower prices to limit-pricing levels.