Gains from Liberalising Services: Price Effects of Regulation

The Productivity Commission has released two staff research papers entitled Price Effects of Regulation: International Air Passenger Transport, Telecommunications and Electricity Supply and Global Gains from Liberalising Trade in Telecommunications and Financial Services.

These two staff research papers are the latest in a stream of research exploring the price and other effects of regulatory regimes in service industries. They apply new analytical methods to extend this emerging area of economic research. The results from both studies provide insights into the mechanisms by which regulatory regimes affect service industries and the economy.

Price Effects of Regulation draws on research undertaken at the OECD to quantify the effects of domestic regulatory regimes on prices in up to 50 economies for 3 sectors — international air passenger transport, telecommunications and electricity supply. The study finds wide variations in regulatory regimes across economies for each sector.

The results suggest a positive relationship between the stringency of regulatory regimes and higher prices in each sector. For example, the bilateral system of restrictions on the number of air passenger flights between countries and the conditions under which they operate are estimated to collectively increase airfares by between 3 and 22 per cent. Global Gains from Liberalising Services uses a general equilibrium model to assess the effects of liberalising trade in telecommunications and financial services for 19 regions of the world.

Results suggest that economies gain from removing barriers to the establishment of new operations (domestic or foreign), and by liberalising the operations of existing operators. For the world as a whole, the one-off gains are estimated to be at least 0.2 per cent of combined GNP, or about US$50 billion.