Nils-Henrik M. von der Fehr
The introduction of market-based competition in industries previously subject to heavy-handed regulation - examples include utilities such as electricity, gas and water, as well as transport, telecommunications and financial services - raises a number of new policy issues. 2 Among these is the question of where to place the responsibility for competition policy in these industries.
This question has two dimensions. The ‘horizontal’ dimension concerns the relationship between the competition authorities and other government agencies with similar, or overlapping, responsibilities; in particular, those agencies responsible for the regulation of specific industries. The industry regulators often have broad responsibilities, typically including competition policy considerations. It is therefore necessary to make clear the respective roles of the competition authority and the regulators.
Closely connected to this is the ‘vertical’ issue of delegation and the autonomy of the regulation and competition authorities. Acknowledging the necessary trade-offs between competition policy considerations, on the one hand, and other policy considerations, on the other, we shall ask to what extent is it possible - and, indeed, desirable - the competition authority be given discretionary decision power?
The question of how to allocate responsibilities for competition policy and regulation falls under the more general issue of the optimal organization of government. In particular, we may ask why the organization of government is separated in the first place. Ideally, an integrated administration should be able to achieve economies of scale and scope through better utilization of expertise and by facilitating the co-ordination of different tasks. The merit of creating separate agencies - each with some degree of discretionary decision power - must originate from some sort of government ‘failure’ or ‘imperfection’.
A split along the vertical dimension implies that decision power is delegated to subordinate authorities. This means that decisions will involve fewer levels of the government hierarchy and may therefore be reached faster. The obvious drawback is that subordinate decision-makers may act in ways that are not consistent with overall political objectives.