Market versus bureaucracy – Price regulation in the electricity retail sector

Abstract

While several economists and European institutions support further liberalization of the energy retail sector, others oppose it on the grounds that end-user price control and the right of states to maintain a system of regulated prices results in more sustainable energy service at affordable prices for households. The roots of this dilemma can be traced to a longstanding economic debate on the primacy of coordination types in society. Although the general coordination form of the capitalist system is indisputably the market, there are several situations whereby other forms of coordination such as bureaucratic, ethical and aggressive (Kornai, 1983) still have a significant role. In this paper we review the regulatory framework of the European countries and examine the impacts of price setting forms on consumer price trends in the electricity sector. Our aim is to measure the impact of the regulatory regime on the main stakeholder groups such as energy consumers, economic actors and the society. We seek to answer whether the energy market actors are capable of effectively coordinating social interactions, or if not, should a central planner correct the anomalies and market failures. Available EU electricity sector statistical data is used to assess the impacts of the various price setting regulatory methods on the functioning of the market.