Natural gas distribution in Italy: When competition does not help the market

In this article consequences of the introduction of competition for the field in the Italian natural gas distribution sector are analyzed. Natural gas distribution constitutes, due to its technical and economic features, a natural monopoly. For this reason, in the framework of the liberalization process, the Italian legislator has introduced, in addition to price regulation, competitive tenders in order to have different operators compete amongst each other for the service concession. After a brief overview of the economic theory referring to competition for the field and an overview of the Italian gas market, the critical aspects of the outlined regulatory framework will be highlighted. More particularly the main features of tenders will be assessed, while, in the following section, the meaning of the imposed revenue cap and its tie to the concession fee will be explained. An analysis of possible reasons for extremely high concession fees will be carried out, evaluating their possible impact on companies' profitability. In the last part of the work, a solution will be proposed in order to build an effective regulatory framework in which competition for the field could actually lead the market to efficiency.