"Competition for the field" and pricing regulation: the case of the natural gas distribution in Italy

Recently, looking at the incoming tenders for the new territorial districts in Italy, the Italian energy authority approved the new regulatory regime for the natural gas distribution where the difference between the VIR (residual industrial value) and the RAB (regulatory assets based) is recognized only to the new entrant (disparity of treatment). This article demonstrates that this decision is sub-optimal for firms and consumers. Compared to the situation under parity of treatment (the difference VIR-RAB is recognized for both new entrant and incumbent), the authority’s choice implies distorted results (the less efficient firm would win the tender) and higher final prices for consumers.