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Economies of Vertical Integration in the Japanese Water Supply Industry

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  • Takuya Urakami

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Abstract

The merging of some water utilities in Japan has become possible since the 2000 Outline of Administrative Reform and the 2001 Water Act Revision. There are two avenues to merge water utilities, horizontal consolidation and vertical integration. Horizontal consolidation enables water distributors, such as the large water supply systems, to merge into one. Vertical integration enables water distributors and water wholesalers, such as the bulk water supply systems, to merge into one. However, these wide area consolidations or integrations havenÂft been promoted at local government level due to an absence of authority. Further, promotion has also been hindered by the lack of previous studies to support the economies of wide area consolidations or integrations. This paper focuses especially on the vertical integration between the water intake-purification and water distribution stages. To investigate economies of vertical integration, I estimate translog cost function in the Japanese water supply industry and test the separability hypotheses among water intake, purification and distribution stages. The results show that the economies of vertical integration exist between the water intake-purification and water distribution stages, so that the bulk water supply systems and the large water supply systems will be able to merge in order to achieve greater cost efficiency.

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Bibliographic Info

Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa06p200.

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Date of creation: Aug 2006
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Handle: RePEc:wiw:wiwrsa:ersa06p200

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  1. Kwoka, John E., 2002. "Vertical economies in electric power: evidence on integration and its alternatives," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 20(5), pages 653-671, May.
  2. Garcia, Serge & Moreaux, Michel & Reynaud, Arnaud, 2004. "Measuring Economies of Vertical Integration in Network Industries: an Application to the Water Sector," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 255, Institut d'Économie Industrielle (IDEI), Toulouse.
  3. Kaserman, David L & Mayo, John W, 1991. "The Measurement of Vertical Economies and the Efficient Structure of the Electric Utility Industry," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 39(5), pages 483-502, September.
  4. Nemoto, Jiro & Goto, Mika, 2004. "Technological externalities and economies of vertical integration in the electric utility industry," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 22(1), pages 67-81, January.
  5. Lee, Byung-Joo, 1995. "Separability Test for the Electricity Supply Industry," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 10(1), pages 49-60, Jan.-Marc.
  6. Jara-Diaz, Sergio & Ramos-Real, Francisco Javier & Martinez-Budria, Eduardo, 2004. "Economies of integration in the Spanish electricity industry using a multistage cost function," Energy Economics, Elsevier, Elsevier, vol. 26(6), pages 995-1013, November.
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Cited by:
  1. Andrea Guerrini & Giulia Romano & Bettina Campedelli, 2013. "Economies of Scale, Scope, and Density in the Italian Water Sector: A Two-Stage Data Envelopment Analysis Approach," Water Resources Management, Springer, Springer, vol. 27(13), pages 4559-4578, October.
  2. Carvalho, Pedro & Marques, Rui Cunha & Berg, Sanford, 2012. "A meta-regression analysis of benchmarking studies on water utilities market structure," Utilities Policy, Elsevier, Elsevier, vol. 21(C), pages 40-49.

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