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Product-Market Competition in the Water Industry: Voluntary Non-discriminatory Pricing

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  • Reto Foellmi

    ()

  • Urs Meister

    ()

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; and (iii) in contrary to prejudicial claims, investment incentives are not destroyed by the introduction of competition for the market. Investments of low-cost firms may even increase. Copyright Springer Science + Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s10842-005-3722-0
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Article provided by Springer in its journal Journal of Industry, Competition and Trade.

Volume (Year): 5 (2005)
Issue (Month): 2 (June)
Pages: 115-135

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Handle: RePEc:kap:jincot:v:5:y:2005:i:2:p:115-135
Contact details of provider: Web page: http://springerlink.metapress.com/link.asp?id=105724

Keywords: product-market competition; water industry; nondiscriminatory pricing;

Other versions of this item:

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: Theory
  • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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Cited by:

  1. Foellmi, Reto & Meister, Urs, 2011. "Enhancing the Efficiency of Water Supply – Product Market Competition versus Trade," CEPR Discussion Papers 8423, C.E.P.R. Discussion Papers.
  2. Vinnari, Eija M., 2006. "The economic regulation of publicly owned water utilities: The case of Finland," Utilities Policy, Elsevier, vol. 14(3), pages 158-165, September.
  3. 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).
  4. Mehdi Farsi & Aurelio Fetz & Massimo Filippini, 2007. "Economies of Scale and Scope in the Swiss Multi-Utilities Sector," CEPE Working paper series 07-59, CEPE Center for Energy Policy and Economics, ETH Zurich.

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