Regulation of Network Industries in South Africa

The 1980s saw a global shift to the liberalization and regulation of network industries which were previously public utilities. Underperforming SOEs and unsustainable debt forced South Africa down this road in the late 1980s with the additional challenge of addressing racially skewed access post-apartheid. In telecommunications, this resulted in a managed liberalization process which has seen private entry but continual structural problems due to a failure to undertake wholesale regulation of the incumbents. Despite a policy advocating structural separation of transmission and generation within electricity, reform stalled due to a shift in government thinking and successful lobbying by Eskom. The regulator, NERSA, has also failed to impose operational efficiency and rein in large price increases. Within transport, aviation was liberalized in the early 1990s with effective regulatory oversight of the airports and navigation systems. However, a dependency on cross-subsidies between ports and rail within Transnet has stalled reform elsewhere.

The Economics and Regulation of Network Industries

Have you ever wondered how your telephone company or Internet service provider can give you access to almost all people in the world, or how electricity suppliers can compete with each other if there is only one electric supply line passing through your street? This Element deals with the economics and public regulation of such network industries. It puts particular emphasis on the specific economic concepts used for analyzing them and on the regulatory reform movement and the compatibility of regulation and competition. Worldwide most of these industries have changed dramatically in recent years, telecommunications in particular. Network industries mostly exhibit economies of scale in production and similar economies in consumption. Both of these properties cause market power problems that often require industry-specific regulation. However, due to technological and market changes network policies have moved on from end-user regulation to wholesale regulation and in some cases to deregulation.

Regulating digital platforms as the new network industries

The most solid framework to both analyze and regulate digital platforms is the one which has developed over the past century for the conceptualization and the regulation of the traditional network industries such as telecoms, transport and energy. Digital platforms in multi-sided markets can be considered the new network industries, notably due to the relevance of direct, indirect and algorithmic network effects. As a result, platforms display features which are similar to all industries where network effects are key, namely concentration, market power and subsequently political intervention. Regulatory measures that have already been tested in the traditional network industries can be exported to the new network industries, including regulation to promote competition by reducing barriers to entry, regulation to promote interoperability and structural remedies along with public service obligations imposed on platforms. Examples of this approach can be identified in different initiatives around the world, with the European Union in the lead.

Planned Obsolescence with Network Effects

This paper appeals to the interplay between network effects and quality to justify the use of planned obsolescence by well-settled firms. We propose a simple contagion model to analyze an asymmetric duopoly market where an incumbent firm benefits, at least initially, from the first‐mover advantages attributed to network industries, while the entrant offers a product with higher quality. The simpler version of the model describes the evolution of the market shares, showing that network effects can overtake the quality effect if the market is sufficiently small. If the market lasts enough, network effects end up enhancing the effect of quality and the entrant gets a higher market share. If the incumbent can set the size of the market by launching a new product every so often, the model provides a rationale for the use of planned obsolescence from a strategic point of view. Social efficiency is then challenged.