Distribution Tariffs: What they are and how they are calculated (Italian case)
A natural monopoly, in the more compelling sense of the term, means that the optimum number of firms in the market is equal to one.
By definition, the natural monopoly implies that the costs incurred by a company in distributing the entire quantity demanded of a good or service are lower than those that would support more companies simultaneously on the market. Under these conditions, the presence of a single, or few, operators is more efficient than a plurality of companies.
The field of power distribution in Italy, has been recognized by the Authority for Electricity and Gas as a unique example of “natural monopoly.” To make it so it is mainly the technical characteristics and the importance of fixed costs, typical of this industry. Therefore, this business has always been subject to a strong regulation that aimed to encourage virtuous behavior for the collectivity and to prevent cross-subsidies from other industry segments.
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