With my simplistic understanding, the issue isn't about free markets vs state leviathans, it's about genuine competition (i.e. a number of genuinely independent players with approximately equal opportunities) vs monopolies and cartels.
Without regulation most markets seem to devolve towards monopolies and cartels fairly quickly as the big fish buy up the small fry.
This doesn't bother the Smithite fundamentalists because ultimately their aim is to become a monopoly. The cant about free-markets is just a convenient bit of a PR they use to sugar the bitter pill of monoculture.
And with something like EU-wide energy policy, the issue isn't regulation vs nationalism, it's intelligent long term planning vs inefficient and inept strategic management - which unfortunately is something the UK is remarkably good at, and which the instant gratification culture of Smithite fundamentalism has done a lot to promote.
The way competitors undercut each other is by cutting prices. The player with the deeper pockets drives the other out of business, then takes over their assets and uses them to recoup their price-war losses. Then on to the next competitor. Who said businesses only care about immediate profits and not about the medium or long term?
When the cartel/monopoly/monopsony is established, then prices go up unnecessarily. guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper
In an ideal world. In the real world, the driven-out player can have no significant assets anymore (at least not enough to make up for losses), and the winner has a thousand means to make the users pay for price-war losses (not the least of which is PR). *Lunatic*, n. One whose delusions are out of fashion.
Then you have the additional elements that investments come in big lumps, and it is thus hard sometimes to finetune capacity - so you end up with excess capacity or looming shortages in alternance. It also means that licensing and permitting procedures, and local hostility can have a big impact on a given project and thus on the overall balance of the market.
And, as I wrote before, some technologies are more sensitive to financing costs than others, so pushing for pure "market" solutions is de facto a technology choice - that of coal and natural gas-fired plants vs wind or nuclear. In the long run, we're all dead. John Maynard Keynes
Not necessarily. You can also compete by keeping prices steady and running a marketing onslaught, which is more or less how Microsoft used to work when it still had competitors. With the exception of IE which was already a post-monopoly 'product', low pricing has never been part of the Microsoft model. So not everyone shops around for the best price, and those that do don't always find it - especially not if you can make yourself more prominent than the competition.
In something like the energy market you can also compete by offering bundled packages that offer more than one service - such as gas and electricity, or water, or even phone and broadband services. This can lead to lower prices through economies of scale and having more bargaining power because you can offer a larger slice of the pie to originators.
But the natural tendency will always be to maximise profits and not to lower prices, by definition. So consumer prices may - and probably will - rise, in spite of the economies of scale.
Jerome: And, as I wrote before, some technologies are more sensitive to financing costs than others, so pushing for pure "market" solutions is de facto a technology choice - that of coal and natural gas-fired plants vs wind or nuclear.
Up to a point. I think there are three different areas where competition is possible:
In the third segment competition is more of a purely financial issue and depends on negotiating and marketing ability. I'd guess this is the only segment where real competition is possible, because in the others the investment levels are too high and the payback terms too long to make market-only exploration a realistic option. Hence some government oversight is needed to set policy and sponsor innovation.
And that's the real point here. Markets can be used to implement policy, but they should never, ever be allowed to define it. Public interest - and that ultimately includes infrastructure support for businesses too - has to be managed strategically with a long term view. Pure market-think can only handle this kind of strategic planning in unusual cases.
What works best is when governments say 'We want such and such a strategic goal - now get to it' as has happened in Iceland and Sweden.
What works least well is when the originators own policy, as they have done in the US and the UK. Then the tail wags the dog, which means that sooner or later the dog falls over.
