For 40 years, regulation has struggled with this question: How do we bring effective competition to industries dominated for decades by government-protected monopolies? The struggle persists, because no one loses his monopoly lightly: not only in the traditional sectors—telephone service; natural gas transportation; and electricity generation, transmission, and retail services;— but in new areas like internet content and delivery, distribution-level electricity resources, and electric vehicle charging stations. We want competition to produce diversity, yet the major players remain the same. One reason: We address only anticompetitive conduct while ignoring unearned advantage. The competition that results is not competition on the merits.
"Effective" competition: The adjective "effective" forces factual analysis into a topic too often discussed rhetorically. Effective competition is not mere rivalry. It is competition on the merits, competition won through performance.
Scherer and Ross describe effective competition in terms of market structure and seller conduct. They identify three structural characteristics: (a) The number of sellers is "at least as large scale economies permit"; (b) there are no "artificial inhibitions on mobility and entry"; and (c) the products offered have "moderate and price-sensitive quality differentials." Within that market structure, the conduct among competitors should have these six characteristics: (a) Competitors have "some uncertainty. . . as to whether one rival's price moves will be followed by the others"; (b) the competitors are not colluding; (c) there are no "unfair, exclusionary, predatory, or coercive tactics"; (d) inefficient suppliers are not somehow protected from competition; (e) "sales promotion should be informative, or at least not be misleading"; and (f) there is no "no persistent, harmful price discrimination". . . .
