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Competition in the U.S. Energy Industry
not meet special requirements, all the primary fuel sources,
through conversion to electricity, are alternative substitutes.
The subject
of this paper is the state of competition in the production of
primary energy in the U.S. and the policies necessary to promote
and preserve effective competition. Emphasis is on determining the
structure of energy production and the competitive implications of
its institutional features. Conduct and performance are also
analyzed. The book is designed to provide a framework for
evaluating various policy options. Hopefully, it provides a basis
for a rational long-run policy towards competition in the energy
industry.
ROLE OF
COMPETITION IN A MARKET ECONOMY
The role of
competition in a market economy based on private property rights
has been widely discussed since the time of Adam Smith. The meaning
of competition in economic theory has not always been clear. One
modern author states: "There is probably no concept in all of
economics that is at once more fundamental and pervasive, yet less
satisfactorily developed, than the concept of competition."
A complete
discussion of the concept of competition is not appropriate here,
but it is informative to note that the concept has evolved over
time. In modern economic analysis, competition describes a
situation where sellers and buyers view price as a parameter
determined by market forces and recognize that the actions of any
single seller or buyer have no perceptible impact on market
price.
Viewing
competition as a process in which price is thought of as a
parameter determined by the individual seller has important
implications for public policy. Businessmen commonly describe
competition as the process by which they engage in a struggle with
other firms for patronage. The attempt to gain patronage may be on
a price or a nonprice basis. There is no assurance that the latter
type of rivalry is synonymous with competition as the term is used
in economic theory, i.e. where price is viewed by the seller as a
parameter. For instance, it could be argued that the U.S.
automobile industry is characterized by a substantial amount of
rivalry but relatively little competition. The focus of public
policy is on competition rather than on rivalry.
The Case
for Competition
Confusion as
to the meaning of competition arises largely because the case for
competition rests on both political and economic grounds. It may
very well be that, in the U.S., political rather than economic
considerations have made competitive markets a social goal. Such a
position has been taken by Prof.