Terry Dwyer (Letters, 1 July) claims that gas pipelines cannot compete with each other and that "eminent economists" favour building infrastructure and then setting prices for its use that don't fully cover costs.
Pipelines do of course compete with each other. The Australian Competition Tribunal recognised this when it found there was no case for regulating the Longford to Sydney pipeline that competes with that from Moomba. We even have discussion about a parallel pipeline being constructed in Western Australia where the government expanded the DBNGP easement as part of the sale.
Dwyer invents a new school of economics, Nirvana Economics, with his suggestion that economists say we would all be better off if we required facilities to be built that did not cover costs. Why stop at gas pipelines? Why not require Ford to sell capacity of its car plants to rivals at marginal cost? Why not require Foxtel to provide its cable services free -- after all the cost is overwhelmingly sunk?
Marginal cost is a useful concept and defines a lower price for producers facing a distressed market situation. If suppliers can find ways where sunk costs are paid by a lump sum, marginal cost also becomes a useful pricing approach. But to require it as a condition of investment or to impose it after firms have sunk their capital, means foregone investment and gradual impoverishment.
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