Classical Economic View of the

¶ … classical economic view of the free market, competition invariably leads to competitive pricing between independent economic entities offering the same good or service. Competition drives prices down and improves quality, making capitalism a boon for the consumer as well as the seller. However, according to David Kay Johnson's article "Competitively Priced Electricity Costs More, Studies Show,"in the New York Times, the trend towards deregulation of electricity has not always produced such a financial boon for consumers.

In fact, retail electricity prices rose with competitive, versus government-set pricing on the utility. The difference was quite considerable. "The difference in prices charged to industrial companies in market states compared with those in regulated ones nearly tripled from 1999 to last July" (Johnson 2007). "In regulated states, prices fell from 7% below the national average to 12% below...That means the difference between market and regulated states nearly doubled" (Johnson, 2007).

Now even industrial companies who championed the end to government caps on prices have begun to blanch at the prospect of reregulation, given the cost it may mean to their bottom line. Electricity pricing is a serious issue, given that the world is growing increasingly dependant upon technology, simply to function. With government-controlled prices, the company providing the power in an area gets a guaranteed profit, in exchange for setting a fixed price through this controlled monopolistic system.

But in a competitive market, where no profit is guaranteed, companies can charge whatever the market supports. The fact consumers must use electricity to survive limits consumer choice, as does the fact that the 'competitive' utility market is not so competitive at all -- it functions more like an oligopoly, as the heavy and costly regulations and high barriers to market entry mean that consumers will always have a limited number of choices. Thus government regulation may be the better alterative, and actually promote free enterprise,.