Structural reform of Japanese electric power industry: Separation between generation and transmission & distribution: A comment

摘要

The author(s) of the paper (Structural reform of Japanese electric power industry: Separation between generation and transmission & distribution. Energy Policy 56 (2013) 186-200) mention in more than one place that the cost subadditivity is a necessary but not sufficient for natural monopoly. Unless the authors meant that their conclusion is based upon the methodology employed by Evans and Heckman (1984), which is not explicitly stated in their paper, then this is in sharp contrast with: (1) Baumol et al. (1982) on the proper cost tests for natural monopoly in a multiproduct industry page 810, last paragraph first column "A cost function... is strictly and globally sub-additive...This is clearly the necessary and sufficient condition for natural monopoly".