Professor Shepherd sees selective price cutting as anti-competitive, but even a monopolist should be allowed to compete on price.
As the electric industry deregulates, state public utility commissions are asked increasingly to allow the local utility to offer price discounts to large-load customers who might otherwise turn to other sellers. So far, nearly all the PUCs faced with this issue have agreed that such discounts are beneficial: They help retain large-load customers, who help pay the utility's fixed costs. Without that contribution, a heavier cost burden would fall on those customers who remain. Professor William G. Shepherd, on the other hand, views this consensus with dread and alarm. %n1%n He argues that regulators must reverse the present trend and forbid utilities from offering discounts to large-load customers. He predicts that, if left unchecked, strategic discounts may stifle competition in a deregulated electricity market.
Professor Shepherd's doomsday forecast is in error. His thesis rests on a misunderstanding of the electric market and misapplies the principles of antitrust law. In reality, strategic discounts promote competition. They play an important role in easing the transition to a deregulated market.
Moreover, Professor Shepherd loses sight of the ultimate goal of the antitrust laws (em to protect the competitive process and the interests of consumers. %n2%n Discounts benefit both the customers to which they are offered and the other ratepayers of the utility.