Network Effects as Infrastructure Challenges Facing Utilities and Regulators

Infrastructure regulation has faced transitions not just in recent years, but also throughout much its existence over the last century. Among the many crucial issues in these transitions has been how to handle network effects. These can both cause monopoly and complicate the management of partial transitions to competition in telecommunications and electricity. Reviewing the variety of definitions, manifestations, and policy consequences of network effects, in sectors not traditionally regulated or regulated outside the ACCC as well as those covered by the ACCC, can promote understanding of when networks should be regulated, what about them should be regulated, who should do the regulating — and why we should intervene. Along with affecting infrastructure, the global financial crisis may itself be a network effect. This paper was presented as the keynote address for the Australian Competition and Consumer Commission Tenth Regulatory Conference, Surfer's Paradise, Queensland, 30 July 2009