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Product-Market Competition in the Water Industry: Voluntary Nondiscriminatory Pricing

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Author Info
Reto Foellmi
Urs Meister () (Institute for Empirical Research in Economics, University of Zurich, Institute for Strategy and Business Economics, University of Zurich)

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Abstract

Since franchise bidding in the piped water industry is problematic due to extensive investment requirements, product-market competition or common carriage is a valuable alternative for the introduction of competition. This paper analyses product-market competition by considering a simple model of interconnection where competition is introduced between vertically integrated neighbouring water suppliers. The model contains water markets specificities such as local and decentralised networks and related difficulties of regulating access charges. Even without any regulation, we show that: (i) An inefficient incumbent will give up its monopoly position and lower the access price far enough so that the low-cost competitor can enter his home market. (ii) Efficiency of production will rise due to liberalisation. (iii) In contrary to prejudicial claims, investment incentives are not destroyed by the introduction of competition. Investments of low-cost firms may even increase.

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Publisher Info
Paper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Working Papers with number 0032.

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Date of creation: 2004
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Publication status: Published in: Journal of Industry, Competition and Trade 5(2), 115-135, 2005
Handle: RePEc:iso:wpaper:0032

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Related research
Keywords: Product-Market Competition; Water; Nondiscriminatory pricing;

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Find related papers by 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
Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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Cited by:
(explanations, 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.)

  1. 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). [Downloadable!]
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