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To: KyrosL who wrote (105482)	5/30/2001 8:02:52 AM
From: Don Lloyd	Respond to of 436258

KyrosL -= That's true, if the market in question is free. However, supporters of price caps argue that the California electricity market is an oligopoly, which at times operates as a monopoly. And any economist will agree that, if this is the case, regulation, including price controls, is a much better choice than letting the price be determined by the oligopoly or monopoly. I can understand why you may believe this, but it is not true, neither in terms of agreement among economists, nor in point of fact. The key to understanding monopoly is to first understand that the word 'monopoly' is not single valued. One form of monopoly is that of a single seller granted its position and maintained by the force of government. In this case, the economics of free markets may or may not apply in detail, but will predict correctly that the result will be less efficient than a free market solution would be if it were possible. Using the word 'monopoly' in its strictest meaning, 'single seller', the result is highly dependent on how the monopoly has come to be and how it is maintained. A monopoly that comes to be as a result of superior products and execution holds no sustained disadvantages for consumers. The monopoly must still price low enough to a) compete with all other consumer expenditure choices, b) increase product volume at least to the point of neutral price elasticity of demand, and c) prevent the entry of competition. It is only when monopoly producers maintain their position by illegal business practices or by government interference or favor that monopoly becomes problematic. In the case of California electricity, the problem is not monopoly per se, but rather the government regulation itself. The problem with the control of retail pricing of electricity is that it does not allow individual purchasers to insert their own price/demand parameters into the mix and thus allocate electricity proportionately to need and desire. It is indisputable that a set of retail prices exists such that wholesale generation suppliers will not be able to both set their prices at will and still sell product. What is less generally realized is that average retail pricing need rise relatively little to reduce demand by 20 to 35%, if intelligently structured and automatically including the potential of voluntary conservation. In the short term, wholesale price caps are made utterly unnecessary if retail prices are even partially de-controlled, and in the long term, wholesale price caps are completely counterproductive in attracting supply. Regards, Don