RTOs will perpetuate regional monopolies and political rate regulation.
C. Wayne Crews is the director of technology policy at the Cato Institute, and Fred L. Smith Jr. is president and founder of the Competitive Enterprise Institute.
Economists sometimes get confused - especially when the real world doesn't fit into their neat boxes.
Network industries like telephone and electricity are today's case in point. Economists have viewed these parts of the economy as requiring special attention from regulatory authorities. They're viewed as "natural" monopolies displaying "economies of scope" and characterized by risky "lock-in" or "path dependency" features. That supposedly makes them prone to abuse by their free-market owners, and therefore in need of impartial regulatory oversight.
That approach has meant that the regulatory problems are simply reshuffled to determining a “fair rate” for allowing use of the network. In practice, that determination will rarely provide the incentives needed to upgrade the network itself. And, often it is the network itself that offers the best prospects for greater efficiency.