Profitability tests in competition law and ex ante regulation

This paper looks at one particular aspect of the application of concurrency—the analysis of profitability. It warns of the danger that the standards of assessment employed in utility price setting will be carried over from ex ante regulation to settings where it is inappropriate, such as the ex post analysis of competitive markets. Utility regulation profitability standards are inevitably static but if these are employed in a competitive setting the wrong signals and incentives will be set. The results will be inefficient levels of entry into existing partially developed markets and insufficient investment in risky developing markets. This may be more costly than failing to account properly for dynamics in ex ante regulation.