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A Handbook of International Trade in Services$
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Aaditya Mattoo, Robert M. Stern, and Gianni Zanini

Print publication date: 2007

Print ISBN-13: 9780199235216

Published to Oxford Scholarship Online: January 2008

DOI: 10.1093/acprof:oso/9780199235216.001.0001

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Trade in Infrastructure Services: A Conceptual Framework

Trade in Infrastructure Services: A Conceptual Framework

Chapter:
(p.338) 8 Trade in Infrastructure Services: A Conceptual Framework
Source:
A Handbook of International Trade in Services
Author(s):

Philippa Dee

Christopher Findlay

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199235216.003.0008

This chapter discusses what many infrastructure industries have in common — economies of scale or scope — and how this poses some significant policy challenges for successful trade policy reform. These conditions can lead to natural monopoly. The problem is that the single producer may abuse its monopoly power by restricting the quantity or quality of output and pricing above costs. Opening this market to trade creates opportunity for alternative suppliers but also creates challenges of arranging the transition to a new provider and regulating them appropriately. The chapter discusses how international trade negotiations can contribute to ensuring successful outcomes. The key messages are that while natural monopoly is a common feature of the infrastructure sector, care should be taken not to exaggerate its importance. There are circumstances in which no policy problem arises. Further, even if there is an apparent natural monopoly, it is important to separate that part of the chain of supply from other elements in which competition can develop. Even so, natural monopoly elements remain. The GATS is relevant to natural monopoly markets and contains some disciplines on policy in those markets. Trade-policy reform can contribute to performance in markets in which natural monopolies have some influence. However, market opening has to be complemented by the appropriate regulatory structures to capture these benefits, for example, related to the terms on which competitive firms have access to bottleneck facilities. Commitments made through international trade negotiations can facilitate the necessary regulatory reform.

Keywords:   infrastructure, economies of scale, economies of scope, natural monopoly, monopoly power, chain of supply, regulatory structure, regulatory reform

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