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42. See William Baumol, "Contestable Markets: An Uprising in

the Theory of Industrial Structure," American Economic

Review 72 (March 1982): 1-15; and William Baumol and John

Panzer, Contestable Markets and the Theory of Industrial

Structure (New York: Harcourt Brace Jovanovich, 1982).

43. Specificity refers to the fungibility of investment for

purposes other than the original if bankruptcy occurs.  A

grocery store, for example, can be converted to other retail

uses if the original purpose of the investment, selling

food, is not profitable.  An electricity grid and a railroad

line, on the other hand, are very difficult to use for

purposes other than transmitting electricity or operating a

railroad.

44. For a discussion of potential versus actual competition

in the airline industry, see Severin Borenstein, "The Evolu-

tion of U.S. Airline Competition," Journal of Economic

Perspectives 6 (Spring 1992): 53-54.

45. Cross-subsidies are also used in electricity service to

fund high-cost renewable (wind and solar) sources of power

and so-called demand management programs.  For a discussion

of the defects of those uses of cross-subsidies, see Robert

Bradley, "Renewable Energy: Not Cheap, Not 'Green,'" Cato

Institute Policy Analysis no. 280, August 27, 1997.  If such

programs are mandated by the public sector, their funding

should come from normal appropriations rather than be hidden

in electricity charges sheltered by monopoly franchises.

46. Subsidies are provided to smaller rural

telephone compa-

nies on the erroneous assumption that costs

are higher.

They are not.  See Joseph Fuhr Jr., "Should

the U.S. Subsi-

dize Rural Telephone Companies?" Journal of

Policy Analysis

and Management 12 (Summer 1993): 582-88.

47. Quoted in Kevin Kelly, "Wealth If You Want It," Wired,

November 1996, p. 268.

48. See George Stigler and Claire Friedland, "What Can

Regulators Regulate? The Case of Electricity," Journal of

Law and Economics 5 (October 1962): 1-16; and Jarrell and

Kwoka, p. 51.

49. Houston, "The Case for Deregulating Electric Transmis-

sion," p. 12.

50. Taylor, p. 74.