Strategic Interaction vs. Regulatory Compliance among Regulated Utilities: The Swedish Water Sector
AbstractThis study provides the first empirical test of strategic interactions in the pricing decisions of regulated utilities. Since publicly owned water utilities in Sweden are governed by a cost-of-service regulation, prices in neighboring municipalities should not affect the own price other than through spatially correlated cost factors. In contrast, spatial dependence is pronounced. This behavior can be explained in terms of an informal yardstick competition: When consumers use neighboring utilities' prices as benchmarks for costs or as behaviorally based reference prices, utilities will face the risk of consumer complaints and successive regulatory reviews if deviating too much from neighbors' prices.
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Bibliographic InfoPaper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 998.
Length: 29 pages
Date of creation: 18 Dec 2013
Date of revision:
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Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
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More information through EDIRC
Yardstick competition; Spatial econometrics; Public economics; Utilities;
Find related papers by JEL classification:
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
- L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
- L90 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-01-10 (All new papers)
- NEP-CSE-2014-01-10 (Economics of Strategic Management)
- NEP-REG-2014-01-10 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bivand, Roger & Szymanski, Stefan, 1997. "Spatial dependence through local yardstick competition:: theory and testing," Economics Letters, Elsevier, vol. 55(2), pages 257-265, August.
- Federico Belotti & Gordon Hughes & Andrea Piano Mortari, 2013. "xsmle—A Command to Estimate Spatial Panel Models in Stata," German Stata Users' Group Meetings 2013 09, Stata Users Group.
- David M. Drukker & Ingmar Prucha & Rafal Raciborski, 2013. "Maximum likelihood and generalized spatial two-stage least-squares estimators for a spatial-autoregressive model with spatial-autoregressive disturbances," Stata Journal, StataCorp LP, vol. 13(2), pages 221-241, June.
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