1 The nature of competition and the regulatory process

If regulation is supposed to replicate (some would say „mimic‟) or at least reflect the results of competition, then it is necessary to ask what competition is supposed to do. In order to design effective regulation we need to understand the meaning of effective competition. There are different ways of ways of assessing competition, and hence effective competition. One approach focuses on equilibrium, another on market process. These have different implications for policy- for example, whether to allow or prohibit competition, whether to impose, maintain or remove a price cap. This will be illustrated by discussion of nationalisation and privatisation, and the setting and removing of transitional retail price caps in telecommunications and electricity. The paper suggests a means of calibrating the concept of a „safeguard ‟ price cap. Seeing competition in terms of market process suggests an approach to utility regulation focused on facilitating the market process rather than replacing it. Some examples are given from the energy sector worldwide. The paper concludes with an application to airport regulation, where the potential for regulation to enable effective competitio