Electric Industry Essay Example | Topics and Well Written Essays - 500 words - 1

Electric Industry - Essay Example The competition in the electricity industry is not as complex as it seems. What has happened is players have always believed that one electricity firm can supply the entire demand at a considerably lower cost than multiple electric firms serving the appropriate market. From this basis they conclude that electric transmission and distribution must always be to be regulated, since in the absence of energy regulation, transmission and effective electricity distribution owners may not face enough competition in the industry to ensure prices are kept low to consumers and to attain economic efficiency in electricity transmitting and distributing. This is, however, the case with many other natural monopolies in the industry. Natural monopolies exists where the largest supplier in an electricity industry, often also the first supplier in a market, has a significant cost advantage over other real or potential competitors; this has always tended to be the case making competition in electricity industry seem complex. The same is the case in the same industry where fixed costs prevail, generating economies of scale that are huge in relation to the market size, as is the case in water and electricity services. This has led to complexity as these electricity firms take advantage of economies of scale and causes problems of bureaucracy and inefficiency. As with all monopolies in electricity market, monopolies who have gained their position on natural monopoly effects could be involved in behavior that abuses their market position, which always leads to calls from various consumers for government regulation. Encouraging competition in the electricity industry is not as complex but requires massive investment by private sector investment as the initial capital is many times massive thus discouraging players and this minimized competition. This would especially start with deregulation that normally lacks monopoly, and these go a long way in encouraging new