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

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  • Reto Foellmi

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  • 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

Suggested Citation

  • 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.
  • Handle: RePEc:kap:jincot:v:5:y:2005:i:2:p:115-135 DOI: 10.1007/s10842-005-3722-0
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    References listed on IDEAS

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    1. Cowan, Simon, 1993. "Regulation of Several Market Failures: The Water Industry in England and Wales," Oxford Review of Economic Policy, Oxford University Press, vol. 9(4), pages 14-23, Winter.
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    4. Grout, Paul A., 2001. "Competition law in telecommunications and its implications for common carriage of water," Utilities Policy, Elsevier, pages 137-149.
    5. 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).
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    Citations

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    Cited by:

    1. Reto Foellmi & Urs Meister, 2012. "Enhancing the Efficiency of Water Supply—Product Market Competition Versus Trade," Journal of Industry, Competition and Trade, Springer, vol. 12(3), pages 299-324, September.
    2. 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.
    3. Reto Foellmi & Urs Meister, 2004. "Enhancing Efficiency of Water Supply – Product Market Competition versus Trade," Public Economics 0412012, EconWPA.
    4. 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.

    More about this item

    Keywords

    product-market competition; water industry; nondiscriminatory pricing;

    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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