In some electricity markets, independent system operators maximize welfare according to generators' bid supply functions, subject to transmission constraints. With looped and possibly congested networks, supply function equilibria (SFE) cannot generally be found analytically.

We provide novel optimization techniques to analyze simplified SFE where generators (and sometimes consumers) with linear supply (demand) functions bid either slopes or intercepts. We show that congested loop flows can lead to somewhat unexpected results, notably:

• A single Cournot price may be more efficient than nodal-priced SFE, especially as rivalry at a node increases;
• Vertical integration into transmission by generators can reduce efficiency;
• Uncertainty can increase efficiency, but reduce profits or consumer welfare;
• Buyer countervailing power can dramatically lower efficiency.

We conclude that without modeling congested loop flows, electricity SFE cannot be fully understood.

Capacity-based interconnection (CBI) prices vary exactly with the costs a network provider incurs when supplying an interconnecting party. That is, they equal incremental costs, rather than being averaged over any output measure. We argue such prices (1) are as practicable and more efficient than per minute rates based on long run incremental cost, (2) are more efficient than bill and keep, and (3) with mark-ups for cost recovery, are a practical and relatively efficient means of pricing wholesale interconnection services, being well-suited to both circuit and packet-based networks.

The paper addresses the regulatory implications and the competitive impacts associated with the convergence between once distinct markets. Specifically convergence is occurring in two primary forms: convergence to two-way broadband from cable, narrowband wireline and various forms of fixed wireless; and convergence to broadcasting from traditional two-way broadband technologies (a reversal of an earlier convergence). We argue that such rapid convergence warrants a reconsideration of regulatory arrangements and indeed a need for deregulation. Convergence raises two related policy concerns. First, the potential need for liberalisation of existing competition laws and regulatory practices, and, second, the need to harmonise any legislation and regulatory processes applying to the converging industries.

The Internet provides consumers with access to vast quantities of information and services, as well as businesses with a truly global market in which to advertise and sell goods and services. The value of the Internet is determined, to a large degree, by the connectivity of the households and businesses that use it. To maximise the value of Internet access, Internet Service Providers (ISPs) located in different countries enter into interconnection agreements to allow their end-users global access. Unlike their counterparts in telecommunications, these interconnection agreements are not typically subject to regulation. This has become a matter of concern in the case of the US backbone market. Foreign ISPs are dependent on Tier One US ISPs for access to the US and claim to face market power when dealing with these firms. This is supported by the degree of concentration in the US backbone market and perhaps more interestingly, by the structure of prices for international connectivity.

The "local cap" uses minimal information to establish an optimal price for a monopolized input in a vertically integrated firm. Under it only upstream costs need be known. No demand information is required. It is comparatively welfare efficient, and has a small regulatory footprint. Profits are capped upstream (e.g., in local telecommunications) and unregulated competition enabled downstream (e.g., long distance telephony). It is compatible with upstream regulation including universal service obligations, guarantees access deficit coverage by an efficient provider, and may be implemented as a price cap or a cost-of-service approach. The input (interconnection) price is set by the monopolist rather than the regulator, subject to it being less than the monopolist's downstream price, and to a simple cap: at most upstream retail (local call) and interconnection revenues (including fees imputed to the monopolist's own downstream services) cannot exceed upstream (local transport) costs taking account of social programs imposed on the incumbent. Using Australian data, it is estimated that the local cap could have halved Australian long distance telephone prices in 1989.

A discussion of compensation for losses imposed by regulation.

This short book, written by a Nobel laureate in economics, is a fascinating read, dealing with issues of long-run macro-level importance. I doubt any book published in 2004 has as many astonishing facts and convincingly argued assertions per page...