Credible regulatory threats

As competition emerges in parts of utility industries and utility regulation policy is reviewed, it is useful to examine alternative forms of regulation that may be implemented. When hit and run entry is believed to be a non-credible threat, potential entry may not constrain incumbent firms’ pricing and production decisions. This paper proposes that the credible threat of intervention by a regulator may impact upon incumbent firms’ decisions. Empirical evidence from the English and Welsh electricity pool market is investigated to discover whether the threat of regulator intervention may have influenced the pricing strategies of the dominant firms in this market.