Network Unbundling and Flawed Coordination: Experience from the Electricity Sector

Bremen Energy Working Papers No. 15, January 2014

(published in Utilities Policy, Vol. 34, 2015, 11-18)

Gert Brunekreeft

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What is a good balance between competition and coordination? On the upside, unbundling in network industries promotes competition, but this should be balanced against the downside of unbundling, that is, the cost of coordination. Firm-internal coordination falls away and must be replaced by external market mechanisms. This is a non-trivial task. The cost of flawed coordination resulting from frag- mentation can be substantial and policy should focus more on market mechanisms and governance structures to secure better coordination. This paper examines the problem of coordination and discusses with real-world examples why the market faces difficulty in providing effective coordination.