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

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Author Info
Reto Föllmi
Urs Meister

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Abstract

This paper presents an attempt to create competition in the water market by means of direct competition. We argue that the usual liberalisation device, competition for the market by franchise bidding, is problematic due to the particular features of the water industry. Our approach proposes the implementation of product market competition, i.e. competition in the market. In such a situation several water utilities using a single set of pipes compete for customers in the same area. Since the water industry is often characterised by local networks, we consider a simple model, where competition is introduced between vertically integrated, neighbouring water suppliers that connect their networks. 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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Paper provided by Institute for Empirical Research in Economics - IEW in its series IEW - Working Papers with number iewwp115.

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Handle: RePEc:zur:iewwpx:115

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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

References listed on IDEAS
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.:

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  4. Ralf Becker & Urs Fischbacher & Thorsten Hens, . "Soft Landing of a Stock Market Bubble, An Experimental Study," IEW - Working Papers iewwp090, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  6. Simon Gächter & Armin Falk, . "Work motivation, institutions, and performance," IEW - Working Papers iewwp062, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  14. Simon Gächter & Arno Riedl, . "Moral Property Rights in Bargaining," IEW - Working Papers iewwp113, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  15. Bruno Frey, 2001. "Flexible Citizenship for a Global Society," Berkeley Olin Program in Law & Economics, Working Paper Series 1018, Berkeley Olin Program in Law & Economics. [Downloadable!]
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  18. Leonard J. Mirman & Klaus Reiner Schenk-HoppÈ, 2003. "Financial Markets and Stochastic Growth," Review of International Economics, Blackwell Publishing, vol. 11(2), pages 219-236, 05. [Downloadable!] (restricted)
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  19. Bruno S. Frey & Stephan Meier, . "Political Economists are Neither Selfish nor Indoctrinated," IEW - Working Papers iewwp069, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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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 Competition versus Trade," Public Economics 0412012, EconWPA. [Downloadable!]
    Other versions:
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