Help needed - Monopolist Profit and Savings

I need some serious assistance right now:

I'm working on a paper that evaluates the impact of Open Access regulations (Third Party Access) to natural gas pipelines, and I wonder if I can make the following argument;

 - Forcing open access reduces the profit of pipeline operators (not controversial)

- Reducing pipeline operator (monopolist's) profits reduces investment by OTHERS into the business of the current monopolist (this is, as far as I know, the Austrian argument against regultion, and should not be controversial HERE).

- reducing current investment into the business of the monopolist reduces the FUTURE supply of the good supplied by the monpolist (my conclusion based on the previous argument - is that a correct conclusion?)

- reducing the future supply of the good in question will increase the future price of the good in question (that would appear logical to me IF the previous step is correct).

Now, I am making the following logical jump: if reduction of monpolist profits today results in lower supplies of the goods tomorrow, would this not mean that by reducing current prices one privileges current consumption over future consumption? And would therefore the reduction of the monopolist's profit not simply be the same as reducing SAVINGS? 

- is it therefore correct to argue that monopolist profits are simply SAVINGS?

- AND: if the argument that monopolist profits are 'inefficient', is this not the same as arguing that SAVINGS are inefficient?

 Please, if somebody knows either where this line of argument has been discussed before, or where I can find a similar line of argument, I would be VERY MUCH obliged.

 Thanks,

 Dietwald 

 It's my understanding that "open access" for natural gas pipelines involves only partial deregulation.  So whether it's ultimately a good thing, from an Austrian perspective, is debatable. I think one would have to know a lot more about the extent of deregulation involved here.

 However, generally speaking, I don't agree with your argument.  By allowing competition, a former monopolist's profits may certainly be reduced, but why do you suppose overall supply would be reduced?  The new entrants will be increasing output, even if the monopolist's output is reduced as a result of his lower profit.

Profits are only being reduced for the monopolist because of this competition and extra supply. 

One other point:  The demand curve for a product supplied by a monopoly tends to be inelastic. (It's to the advantage of the monopolist to reduce supply to increase his revenue.)  However, in a free market the demand curve for the good becomes more elastic. Thus overall revenues for the industry as a whole (not necessarily for the former monopolist) are increased with increasing supply.

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Thanks for the answer,

I think I have to be more detailed in my question/argument. The whole argument has to be seen in the context of legally enforced break-up of production chains (undbundling) in the name of 'liberalization' (NOT deregulation).

 [excerpt from my current argument]

 Let us assume that some lucky nomad happens to come across a spring right in the middle of the desert. He henceforth claims it as his own, sets up a Caravansarai and everybody who comes by is charged an ounce of gold per ten camels who will drink there. It is not unreasonable to assume that providing the water does not cost our Caravansarai manager more than about an ounce of gold for the water that could be used to replenish one thousand camels. There is no other oases anywhere close, so those camel drivers who show up at the oasis will have to pay the demanded price (we assume that nobody resorts to violence).

Now let us assume the country our Caravansarai is located in joins the European Union, and the European Commission decides that it is time to liberalize the Caravansarai industry (after intense lobbying by the Camel Driver Union). EU regulators would come upon our lucky man, calculate his marginal costs, and then oblige him to supply water at this price and no more lest he be slapped with a fine for anti-competetive behaviour. One can expect that now far more camel drivers are going to show up at this Oasis than at others (the neighbouring Oases happen to be located outside the EU). They can now water their camels, donkeys, and horses for no more than 1 Euro (ounces of gold are no longer legal tender) per head.

For camel drivers, this is a good thing, and presumably for consumers as well since now it will be possible to carry goods across the desert for far less than before. And the operator of the Caravansarai is not going to go broke, either. But is the outcome of this an unquestionable good? It benefits the camel drivers, who now can use more water - and it benefits more camel drivers. But - the monopolisitic behaviour of the Caravansarai operator may have had (unintended) benefits: a) by reducing the consumption of water through pricing it at the maximum, he limited the amount of water used. It was in his interest to sell as little as possible for as much as possible - this in turn reduced the likelihood of the springs on his oasis to be depleted. They may run dry eventually, but by using them less than before, the useful lifespan of the oasis was extended.

By regulating (forcing) access to the oasis, the EU regulation has inadvertently turned the oasis into a commons and exposed it to the risk of the 'tragedy of the commons' - namely the excessive exploitation of the resource. In effect, the owner of the oasis is forced to supply as much water as is demanded by the caravans. While the owner may have an interest in preserving the long-term viability of the spring, the individual caravans have no such interest, but will prefer to run the spring dry.

Applying this reasoning to natural gas requires a little more imagination, but can be considered in the same way: unbundling and Third Party Access commonalizes the resource in question. Gas traders are only interested in the lowest possibly price for the transit of gas, while consumers are only interested in the lowest possible price for the gas itself. There is little regard by either of the participants in preserving the long-term supply of the natural gas. Since the profitability of the gas pipeline operator is reduced, there is less interest among gas pipeline operators to build pipelines, which in turn makes the transportation of gas more expensive in the long run. This in turn reduces the profitability of natural gas for natural gas producing companies, who now have a much lower incentive to develop gas fields, which in turn will reduce the likelihood of new gas fields to be brought on-line (incidentally, one of the main reasons for Gazprom to underdevelop its gas fields is the government's price cap on natural gas for consumers). By failing to bring new gas fields online, the amount of gas available in the future will be reduced, resulting in a declining production of natural gas and a higher price for natural gas in the long run.

It can therefore be argued that current reductions in prices for natural gas will in the long run result in higher prices for natural gas. But this is not the only negative effect; by reducing the relative price of natural gas now, it also becomes less profitable to invest in alternative supplies of energy - further reducing the volume of energy available in the future. Eventually, more money will have to be paid for energy in the future than would be necessary, simply because investments have been redirected from developing new sources of energy into other, more profitable areas. TPA simply encourages current consumption of energy at the expense of increasing the future supply of energy. Rather than looking at the monpolist's profit as an inefficiency, it could be treated as savings - savings by the monpolist what can be used for either further investment into future energy supplies, or savings that can be made available to other economic actors - including those who develop technologies for limiting the consumption of energy (indirectly, by borrowing from banks).

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all comments more than welcome. 

 Ok, now I see. This is not the creation of a free market at all. If the legitimate owner of the pipeline is being forced to surrender control of his pipeline to others, this is an invasion of property rights.  And it amounts to the implementation of a price control on pipeline services.  And any price control that forces a supplier to provide a good at below market rates will certainly lead to a shortage of that good and reduced investment in future supply. You are correct there.

However, I wouldn't go so far as to say:

"Rather than looking at the monpolist's profit as an inefficiency, it could be treated as savings - savings by the monpolist what can be used for either further investment in future energy supplies, or savings "

Even though the monopolist's profit could be be used for further investment, and may amount to a better outcome in the long run than the so-called open access system you describe, the best thing that could happen would be total deregulation.  i.e.  allow others to build new pipelines, without restrictions, and without any invasion of property rights.

Thank you, at least my reasoning is not totally out of whack. And yes, I want to argue that total deregulation would be better for everybody in the long run. I'm just trying to run my ideas by more people for comment, because I don't want to go off track. I really appreciate your feedback.