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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 Group Munich.
  • Handle: RePEc:ces:ceswps:_2973
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp2973.pdf
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    References listed on IDEAS

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    1. Revelli, Federico, 2006. "Performance rating and yardstick competition in social service provision," Journal of Public Economics, Elsevier, vol. 90(3), pages 459-475, February.
    2. Joris Pinkse & Margaret E. Slade & Craig Brett, 2002. "Spatial Price Competition: A Semiparametric Approach," Econometrica, Econometric Society, vol. 70(3), pages 1111-1153, May.
    3. Lutz, Stefan & Lyon, Thomas P & Maxwell, John W, 1998. "Strategic Quality Choice with Minimum Quality Standards," CEPR Discussion Papers 1793, C.E.P.R. Discussion Papers.
    4. Magnus Söderberg, 2008. "Uncertainty and regulatory outcome in the Swedish electricity distribution sector," European Journal of Law and Economics, Springer, vol. 25(1), pages 79-94, February.
    5. Gert Brunekreeft, 2004. "Regulatory Threat in Vertically Related Markets: The Case of German Electricity," European Journal of Law and Economics, Springer, vol. 17(3), pages 285-305, May.
    6. repec:bpj:rneart:v:8:y:2009:i:3:p:212-232 is not listed on IDEAS
    7. Ingo Vogelsang, 2012. "Incentive Regulation, Investments and Technological Change," Chapters,in: Regulation and the Performance of Communication and Information Networks, chapter 4 Edward Elgar Publishing.
    8. Chisari Omar & Kessides Ioannis N., 2009. "Pricing Dynamics of Network Utilities in Developing Countries," Review of Network Economics, De Gruyter, vol. 8(3), pages 1-21, September.
    9. Christopher R. Knittel, 2003. "Market Structure and the Pricing of Electricity and Natural Gas," Journal of Industrial Economics, Wiley Blackwell, vol. 51(2), pages 167-191, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    regulatory threat; spatial correlation; price; district heating; Sweden;

    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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