A Northern Electric + Gas case study

Page 1: Introduction

From 1945 to 1950, a Labour Government altered the structure of British industry by nationalising many major UK undertakings, including coal mines, steelworks, railway companies, airlines, and gas and electricity supply companies. Some nationalised industries were granted a monopoly, including the National Coal Board, the British Railways Board and the Central Electricity Generating Board. For...
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Page 2: De-regulation

In some ways, de-regulation is a misleading term. It involves altering regulations, not abandoning them. It implies opening up markets to competition. Where an industry had been a state-run monopoly, it was usually broken up into smaller units at the time of sale, and new firms were encouraged to enter the industry. The government realised that giving up ownership did not also mean relinquishing...
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Page 3: Market share

Market share refers to the proportion of a market that a particular firm holds. It may be measured by value (percentage share of total annual sales) or by volume (percentage share of total quantity sold). The electricity industry is complex. It consists of four main markets. Electricity generation. Power stations generate electricity. Seven generating companies sell electricity in bulk...
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Page 4: Increasing market share

Growth involves a firm retaining its existing customers and persuading other suppliers’ customers to ‘switch’. The instruments of persuasion are advertising, quality of service and price. Pricing is a tricky area. The temptation is to gain market share by undercutting other suppliers’ prices. Strict rules apply here, however. These include: no predatory pricing - no...
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Page 5: Winners and losers

The ‘no price discrimination’ rule disadvantages large, established firms that have built up a complex organisational structure.  Before they can offer attractive prices to new customers they need to reduce their overheads and slim down their organisation, because any new, low prices have to be offered to all of their customers. British Gas was particularly affected by the new...
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Page 6: Conclusion

Evidence to date suggests that deregulation is proving successful in the gas and electricity industries. Prices are falling, competition is increasing, customers are switching, and new suppliers are establishing significant market shares.Consumers can now choose from among more than 20 suppliers of gas and electricity. Ofgem is working to ensure that consumers are kept aware of their choices...
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