Shameless self-promotion, at last

[Eugene Coyle <eugenecoyle@xxxxxxx>]

I have recently finished a paper titled "Price Discrimination,
Electronic Redlining, and Price Fixing in de-regulated electric power."

    I feel shameless not only for calling attention to the paper but
because I have more than once announced -- long ago -- that it was
imminent.

    Done for the American Public Power Association (APPA). it came out
last week.

    The argument is economic, but different than anything I've seen from
other economists on "competition" in electric power.  My conclusion is
that "competition" can't work in electric power.  Not that it won't
work, but something stronger, that it can't work.

    My examples range from agriculture to universities to airlines --
people who have seen the section find the university discussion quite
engaging.  I discuss some old price fixing, by GE and Westinghouse,
among others, and explain why it had to occur, and I discuss some modern
price fixing convictions -- Archer Daniels Midland, supermarket to PBS
-- and the vitamin convictions of 1999, which resulted in a fine of $750
million.  I explain WHY ADM had to fix prices, and why the vitamin
makers had to fix prices.  And of course, we must expect the inevitable
price fixing in electric power.

    I rely on the work of serious economists -- including some very
modern game theorists.  And I use a "pull quote" from the University of
Chicago economist, Lester Telser, a prominent current developer of the
"theory of the core," (who is perhaps Michael Perelman's  favorite
conservative economist) to stress that  "These ideas are not fads or
ideosyncrasies.  They come from the mainstream of economic theory and
help us understand the modern economy."

    Along the way I point out an amusing, not to say amazing,
self-contradition by Baumol, Joskow and Alfred Kahn.  They assert in a
footnote that the market can't work in an industry with the cost
characteristics of electric power -- a footnote at the bottom of the
same page where they extol competition as the way forward in electric
power!  One wonders -- well, I'll let you guess what I wonder.

    At the end I assert that only public ownership, or local "public
aggregation" can protect small business and residential customers from
price discrimination.

    They may put it up on their web site -- still under consideration as
far as I know.

I'll past the table of contents below.

Gene Coyle


Table Of Contents

Page
Executive
Summary
v

Section 1
Introduction
1

Section 2  Economic
Theory                                                         9

The Economic Theory Behind The Drive For Deregulation           11

A Business Without Profits  Selling Undifferentiated Commoditis   1

Cooperation And Collusion  A Long History In Commodities1

Large Overhead Costs  Another Blow To Competition                 17

Cost Structure Is Critical 21

Recent Recognition Of The Issue Of Cost Conditions 28

Section 3   Overhead Costs Through The Lens Of Game Theory: The Work Of
Lester Telser 33

A Lawyer's Reply To The Argument For Allowing Horizontal Agreements 39

Studying And Trying To Control Market Power Is A Sideshow 43

An Industry Where "Cooperation" Is Legal 43

The American Bar Associationís Hypothetical And The "Rule Of Reason44

"Uneconomic By-Pass Rates" 44

Conclusions From Economic Theory And Economic History 45

Section 4  Current Price Discrimination Tells The Story: Colleges And
Universities 47


Section 5  Current Price Discrimination Tells The Story: The Airlines 59

Airline Price Discrimination 61

Yield Management 63

Tools For Discrimination 64

The Requirement Of A Saturday Night Stay 64

Non-Refundable Tickets 65

Distressed Inventory 65

Corporate Customers Fight Back  Increasing Price Stratification 66

Corporations Make Deals 66

Other Reactions 66

Issues Beyond Discrimination 67

Oligopolistic Pricing Among The Majors Dominates The Industry 67

Airline Prices Have Risen Sharply 69

Airfares In The Consumer Price Index 69

Predatory Pricing, Particularly At "Fortress Hubs," Is Common 70

Section 6  The Small-Customer Electricity Market Under Deregulation 73

Bundling And Unbundling 76

Pricing Electricity In A Deregulated World 79

Avoiding Competition 81

Marketing 82

A Third Strategy  Transform The Product 82

A Fourth Strategy  Bundle The Product With Others 82

Hedging Products  The Most Profitable Part Of Any Bundle 84

Customers Will Be Segmented 85

Section 7  Lack Of Privacy And Data Mining 87

Privacy Protection 90

The Availability Of Data 90

Banks Have Been Selling Customer Records 92

HMOs And Medical Insurers 93

The Internet 94

The Industry Of Data Mining 95

Section 8  Electronic Redlining 99

Why Call It "Electronic Redlining?" 102

Customers And The Internet 104

Selective Marketing 105

Companies Do Shed Customers 106

Section 9  Structural Protection Of Small Customers 109

Public Power 111

Public Aggregation 113

About The Author Back Cover