That process, over time, led to the consolidation of the electricity industry in cities like New York and Chicago into one large firm.
Not all of the companies could stay in the market. In Chicago, for example, in the late 1890s there were about a dozen different firms providing electric service in the Chicago market, but, as they competed against each other they competed so much that they were lowering their prices, lowering their prices, lowering their prices until price would go so low that they couldn’t actually pay all of the fixed costs that they had incurred to build the generators in the first place. In economics we call this economies of scale, and this economies of scale in the big technologies and industries like electricity really make it challenging to have rivalrous competition.
And so that meant that their average cost per unit of electricity they sold and their average cost per customer really fell and fell over the course of serving a large number of customers. It changed the cost structure of the industry in a way that the electric company that owned this generator, their fixed cost was very, very high for building these big generators, but then their cost for serving an additional customer was really, really, really low. That changed the cost structure of the industry. The kinds of innovations that happened in this industry were on a big scale: large generators, lots of long wires connecting large generators, in places like Niagara Falls to cities like New York. A lot of firms entered the market to provide electric service in larger cities and competed against each other. By the 1890s it’s really starting to grow, especially in large cities like New York and Chicago. Take for example the electricity industry. The history of this kind of regulation teaches us a lot about the economic processes that drive innovation and economic activity and whether or not regulation in these natural monopoly situations actually provides value and makes consumers better off. And we think of legislation like the Sherman Antitrust Act as a way that we control the growth of monopoly, market power, and the ability of firms to come to dominate one industry. One way we usually associate with government intervention or government activity is the regulation of monopolies. Regulating Monopolies: A History of Electricity Regulation
0 kommentar(er)
