When Free Entry is Not Socially Desirable: Discussion on the Current Model of the Brazilian Electricity Industry

E.A. de Santana, A.L. da Silva Leite, and D. de Paiva Mendes (Brazil)


Electric energy, Access price problem, Inefficient entry


The purpose of this paper is to show that in a network industry with high sunk costs there is an optimal relation between socially desirable entry and the protection of the incumbent against predatory entry. In the Brazilian ESI, that predicts competition for free consumers, we conclude, by using the concepts of inefficient entry and access price problem, that the misunderstanding of the right conditions of this potential competition can result in the incumbent’s accommodation and, hence, in demand loss, which would help to explain part of the current energy crisis.

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