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Informal Benchmarks as a Source of Regulatory Threat in Unregulated Utility Sectors

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  • Magnus Söderberg

Abstract

This paper investigates to what extent unregulated local monopolies attempt not to evoke the introduction of a formal price regulation by conforming to customers’ and authorities’ expectations. It is argued that utilities can meet expectations by setting prices that imitate neighbours’ prices. The empirical evaluation rests on a cross-sectional data set representing all Swedish district heating utilities, and on a flexible nonlinear IV specification. It is found that while utilities’ price setting schemes are insensitive to customer complaints, they are significantly influenced by the passive monitoring by authorities. The spillover effect from the 5-6 closest neighbours is around 40 %.

Suggested Citation

  • Magnus Söderberg, 2010. "Informal Benchmarks as a Source of Regulatory Threat in Unregulated Utility Sectors," CESifo Working Paper Series 2973, CESifo.
    • Handle: RePEc:ces:ceswps:_2973
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • L97 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Utilities: General

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