Undergraduate Economics

[cge@fgv.br]
Course: Economic Regulation
Instructor: Jorge Oliveira Pires

2ND SEMESTER 2016

OBJECTIVES
The main objective of the course is to enable students to apply microeconomic reasoning in order to (i) evaluate the
welfare impacts of potential or actual market failures; (ii) critically examine public policies regarding economic regulation
of utilities/infrastructure sectors

METODOLOGY
The course comprises lectures, case studies, debates, and writing a term paper. The students will have to analyze and
answer questions about concrete cases regarding mergers and acquisitions, anti-competitive business conducts, and the
adequacy of regulatory procedures in infrastructure sectors. The material covered has ample roots in Microeconomic
Theory and Industrial Organization analysis. Some ethical questions are often raised and shall be addressed in the context
of case studies. Two outside presenters will be invited to offer insight into their experiences in public office in Brazil.

PROGRAM
1. Introduction
1.1. Rationale for economic regulation policies
1.2. What is meant by economic regulation?
1.3. New experience and analysis
2. Why regulate utilities?
2.1. Normative rationales for public utility regulation
2.2. Alternative explanations for public utility regulation
2.3. Implications of the different rationales for regulation
3. Alternatives to traditional regulation
3.1. Competition for the market
3.2. Contestability and the threat of entry
3.3. State ownership of the utilities
3.4. Reliance on ex post competition law
3.5. ‘Deregulation’ policies and a reliance on competition
3.6. Negotiated settlements
3.7. Other alternative approaches to public utility regulation
4. Principles of regulation for core network activities
4.1. Public utility industry structures
4.2. Pricing principles under full information
4.3. Pricing principles for the multi-product firm
4.4. Regulation in the context of imperfect information
4.5. Pricing in a multi-period context
4.6. Principles relating to quality and cost reduction

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5. Forms of price regulation
5.1. Rate of return regulation
5.2. Price cap regulation
5.3. The relationship between rate of return and price cap
5.4. Productivity evaluation for regulatory purposes
5.5. Hybrids and adaptations to traditional price regulation
5.6. Price regulation when competition is emerging
6. Regulation in the presence of competition
6.1. Access in the public utility industries
6.2. One-way access pricing
6.3. Two-way access pricing
6.4. Access pricing and investment
6.5. Vertical separation in the public utility industries
7. The institutions of regulation
7.1. The rationale for independent economic regulatory agencies
7.2. The evolution of independent regulatory agencies
7.3. Design of regulatory agencies and the scope of their power
7.4. Regulatory oversight: quis custodiet ipsos custodes?
8. Networks and platforms
8.1. Network effects
8.2. Two-sided markets/platforms (credit and debit cards, internet, others) and antitrust and regulatory issues
9. Electricity regulation
9.1. Physical and economic characteristics of electricity
9.2. Approach to electricity regulation
9.3. Regulatory policy issues in the electricity industry
10. Gas regulation
10.1. Physical and economic characteristics of gas
10.2. Approach to gas regulation
10.3. Regulatory policy issues in the gas industry
11. Telecommunications regulation
11.1. Physical and economic characteristics of telecommunications networks and services
11.2. Approach to telecommunications regulation
11.3. Regulatory policy issues in the telecommunications industry
12. Water and wastewater regulation
12.1. Physical and economic characteristics of water and wastewater
12.2. Approach to water and wastewater regulation
12.3. Regulatory policy issues in the water and wastewater industry

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 REFERENCES
Textbook (main reference)
Decker, Cristopher (2015). Modern Economic Regulation, Cambridge University Press, UK.
Others
Viscusi, W. K., J. M. Vernon & J. E. Harrington (2005), Economics of Regulation and Antitrust, MIT Press, Cambridge,
Massachusetts, USA.
Anatel (2014). Resolução nº 639, de 1º de julho de 2014.
Armstrong, M. and Wright, J. (2009). Mobile call termination in the UK: a competitive bottleneck? in Lyons (2009).
Chisari, O. O. (editor) (2007)*. Regulatory Economics and Quantitative Methods: Evidence from Latin America, Edward
Elgar, Cheltenham, UK.
Coelli, T., A. Estache, S. Perelman, L. Trujillo (2003)*. A Primer on Efficiency Measurement for Utilities and Transport
Regulators, World Bank, Washington D.C., USA.
Crew, M. & D. Parker (2006). International Handbook on Economic Regulation, Edward Elgar, Chelteham, UK.
Evans, D. and Schmalensee, R. (2007). The Industrial Organization of Markets with Two-Sided Platforms, Competition
Policy International, Vol. 3, No. 1, Spring 2007.
Kühn, K. and Reenen, J. (2009). Interoperability and market foreclosure in the European Microsoft case, Chapter 2 in
Lyons (2009) op. cit.
Kwoka, J. E. & L. J. White. (2009). The Antitrust Revolution: Economics, Competition and Policy, 5th ed., Oxford University
Press, Oxford, UK.
Lyons, B. (editor) (2009). Cases in European Competion Policy: The Economic Analysis, Cambridge University Press,
Cambridge, UK.
Martin, S. (2010). Industrial Organization in Context, Oxford University Press, Oxford, UK.
OECD (2009). Two Sided Markets. OECD Roundtables, Organisation for Economic Co-operation and Development,
DAF/COMP(2009)20, 17-Dec-2009.
Sherman, R. (2008). Market Regulation, Pearson / Addison-Wesley, Boston, Massachusetts, USA.
Hard copies or electronic files of the case studies will be available for the students.

GRADING SYSTEM
Case studies: 30% Papers/Presentations: 30% Class Work/Homework: 10% Final exam: 30%

OFFICE HOURS
E-mail: jorge.pires@fgv.br
Tuesdays and Thursdays, 14:30 - 15:30h, room 1016 10th floor EESP building. Appointments for other days/hours can easily be
scheduled with the instructor by e-mail.