Three essays on the competitiveness of the electric utility industry

The competitiveness of a given industry falls between the two extremes of pure competition and pure monopoly. Two procedures for explicitly determining the degree of competitiveness are the estimation of conjectural elasticities and price-cost margins. Conjectural elasticity refers to a firm's belief how industry output will respond to an increase in output by that firm. The conjectural elasticity measure ranges from 0 in the case of pure competition to 1 in the case of pure monopoly. Price-cost margins measure a firm's ability to set prices in excess of marginal costs. A monopolistic firm's price-cost margin can be as high as the inverse of the product's own-price elasticity while a firm in a competitive industry cannot charge in excess of marginal cost in the long-run. Long-run price-cost margins in a competitive industry will equal zero. During the past few years numerous states have adopted or are considering legislation to deregulate the electric utility industry. The stated purpose of the legislation is to increase competition. I estimate the conjectural elasticity and the price-cost margins in the electric utility industry during the 1973--1998 period to measure the degree of competitiveness in that industry and to observe the trend of competitiveness during the past few years.