Rolf H. Weber, Wirtschaftsregulierung in wettbewerbspolitischen Ausnahmebereichen. Studien zur staatlichen Wirtschaftsregulierung und zum Einsatz der Regulierungsinstrumente in den Transport-, Kommunikations- und Energiemärkten in der Schweiz und in den Vereinigten Staaten von Amerika, Baden-Baden 1986.
This publication analyzes the possibilities and the boundaries of the state’s regulation of the economy (respectively, deregulation). In addition, it examines the use of different regulatory instruments with regard to their strengths and weaknesses in the transport, communication and energy sector in Switzerland and the USA.
As long as competition is fulfilling its co-ordination function, the state does not need to interfere in the market. However, when the principle of the open market is failing, the state intervenes with regulation in order to correct and neutralize the market failure that is occurring. This is done by “outsourcing” certain activities from the market. The market’s invisible hand is replaced by visible governmental supervision. The exclusion of certain areas from competition for policy reasons (“wettbewerbspolitische Ausnahmebereiche”) is justified by economic efficiency reasoning; the regulation shall prevent a loss of wealth due to market failure. This can also be justified with societal as well as social arguments; in connection with this, the following question arises: Does this serve a real social need or is the regulation induced by political power relations and only serve the benefit of a few market participants. Whenever inefficiencies in competition are identified, the regulator will raise the following questions: “Why should the state interfere? Which sectors, in particular, would qualify for intervention? How will this interference be executed and how far should it go (acceptance of suboptimal condition, antitrust law, regulation or nationalization)? Who will expediently be put in charge of this task?” (p. 79). The economic considerations and the therewith related consequences should always be kept in mind.
Market failure occurs in many different ways; particularly relevant here are the natural monopoly, the ruinous competition, the external effects; and public goods together with the natural shortage of goods. Sometimes these occur in a combined manner. Depending on the type of failure that may occur, different regulatory instruments are used. For example, market access can be restricted through a concession, a police authorization or a license. Market barriers are justified with natural monopolies. Also the rationalization of scarce resources, the protection of minimum price regimes, the preservation of service quality, as well as the protection of current market participants, serve as justifications. Examples from the US have shown that the justification of barriers has to be questioned to a greater extent. The distribution of scarce resources plays a very important role since the resources are quite limited in the various submarkets and have to be allocated to only a few companies. This results in those companies being monopolists; hence, downstream regulation is needed. Among other things, companies engaged in exceptional areas with regard to competition policy are obliged to serve every potential purchaser (obligation to enter into a contractual relationship) as well as to maintain daily operations. Furthermore, they are not allowed to discriminate, and they have to treat everybody equal. These basic principles are – despite being designed differently – very similar in the US and Switzerland. In order to achieve minimum quality requirements in the performance offer, certain standards must be established; this includes, in particular, provisions regarding security and suitability. When comparing the situation in Switzerland with the US, one notes that similar questions and issues arise. A further focal point of economic regulation is the regulation of prices. The latter aims at hindering excessive profits resulting from monopolies and ensuring that customers are getting suitable prices and services. A profitability regulation is applied and the price level and price structure are policed in the US; in contrast, the prices are checked directly in Switzerland.
Since, according to the principle of subsidiarity, the state should only intervene in economic procedures when a competition-based economy is incapable of fulfilling supply functions for appropriate conditions, one will also deal with deregulation when confronting regulation. Correspondingly, one can almost always pose the question of deregulation. In the event of structural changes, altered demand, technical changes, innovations etc., one should check whether state regulation still seems appropriate, as bureaucracy does not know the mechanism of self-dissolution.
In summary, one may say that Prof. Weber’s work represents a comprehensive overview of exceptional areas with regard to competition policy in which he compares Swiss and US circumstances by using examples of the transportation, communication and energy markets.
You can find a scan (PDF) of the original text here: Weber Rolf – Wirtschaftsregulierung in wettbewerbspolitischen Ausnahmebereichen