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Enhancing Efficiency of Water Supply - Product Market Compoetition versus Trade

Author

Listed:
  • Reto Foellmi
  • Urs Meister

    (Institute for Empirical Research in Economics, University of Zurich
    Institute for Strategy and Business Economics, University of Zurich)

Abstract

This paper analyses welfare gains in the piped water industry when introducing competition or trade between local utilities. The connection of neighbouring networks can be used for both, voluntary cross border trade and product market competition by common carriage. Using a game theoretic model we show that common carriage induces stronger production incentives for inefficient suppliers. This implies that production efficiency but also retail price tend to be lower than with trade. The net effect regarding welfare depends on the efficiency differential. At higher cost differentials welfare is higher under competition ? even in a lower bound benchmark case without regulation.

Suggested Citation

  • Reto Foellmi & Urs Meister, 2004. "Enhancing Efficiency of Water Supply - Product Market Compoetition versus Trade," Working Papers 0025, University of Zurich, Institute for Strategy and Business Economics (ISU).
    • Handle: RePEc:iso:wpaper:0025
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    References listed on IDEAS

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    Cited by:

    1. Urs Meister, 2005. "Do welfare maximising water utilities maximise welfare under common carriage?," Others 0505001, University Library of Munich, Germany.
    2. Reto Foellmi & Urs Meister, 2005. "Product-Market Competition in the Water Industry: Voluntary Non-discriminatory Pricing," Journal of Industry, Competition and Trade, Springer, vol. 5(2), pages 115-135, June.

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    More about this item

    Keywords

    Water; Networks; Product-Market Competition; Trade; Bargaining;
    All these keywords.

    JEL classification:

    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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