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April 26, 2006

Shakeups in utilities

There have been some big mergers (and rumors of mergers) in phone service and electric power generation -- industries that used to be called utilities. N.C. State University's Mike Walden explains what's going on.

"These industries share a very important characteristic: They are very costly to build, but once they are built it is very cheap to add new customers. In fact, this was the reason that they were originally regulated," says Dr. Walden, an economist in the College of Agriculture and Life Sciences.

"But now we have full or partial deregulation and we have competition, and this is presenting some challenges. These industries typically are able to attract new customers through one of two methods: either
price wars (trying to underprice their competitors) or, if they find that doesn't work, they can combine forces through mergers.

"And recently apparently what we are seeing is the price war tactic has not worked so we are seeing more mergers in these two important industries."

Posted by deeshore at April 26, 2006 07:36 AM