Although state and local regulation may hold some promise as a vertical forum for regulating industries, decentralized regulation is commonly understood to present a serious tension for competitive markets. National regulation is more likely to facilitate the development of competitive interstate markets because localities face stronger incentives than the federal government to erect barriers to trade. Especially in the context of network facilitities, which rely on interstate markets, state and local regulation may create patchwork approaches to regulatory problems. For these reasons, commentators commonly embrace national regulation as necessary to address many of the problems confronting economic regulation of network industries, such as electric power and telecommunications (Chen, 2003b; Cudahy, 2002b; Pierce, 1994).

Electric power transmission for deregulated wholesale power markets illustrates the need for a national-led approach to network regulation, such as the issue of high-voltage transmission line expansion and siting. If left to its own devices, a state or local political process is not likely to yield stable regulatory solutions for an interstate market in competitive power sales. To the extent states have the power to site transmission lines, for example, interstate markets will not always develop around congested transmission areas. Bottlenecks in power transmission will impair the development of interstate power markets and competition. Protectionist state regulatory action, discussed in Chapter 7, is one problem. State or local inaction and recalcitrant state legislatures pose an equally, if not more substantial, impediment to competitive markets in a dual jurisdiction framework.