This paper utilizes the fixed-effect model of the panel-data analysis and estimates the translog cost function of the Japanese electric power industry from 1978 to 1998. First, we investigate whether the Japanese electric power industry has been naturally monopolistic or not. We find that all electric power companies still benefit from both scale and scope economies and therefore this industry remains a natural monopoly where we cannot expect a competition will automatically function. Second, in order to apply the idea of yardstick-type competition even to the naturally monopolistic industry where costs are quite different between companies, we introduce two kinds of cost-comparison coefficients for the individually specific effect and the scale-and-scope economies respectively.
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