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A Mechanism for Institutionalised Threat of Regulation: Evidence from the Swedish District Heating Market

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  • Bonev, Petyo

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  • Glachant, Matthieu

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  • Söderberg, Magnus

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Abstract

This is the first study that uses a natural experiment to test the Regulatory Threat Hypothesis. We use a unique novel dataset on unregulated Swedish local district heating monopolists and a new measure of threat - customer complaints. Our results support the Regulatory Threat Hypothesis: firms reduce prices when they feel threatened by price regulation. We also find evidence that (otherwise unrelated) monopolists homogenize locally prices to reduce complaints and thus to reduce threat of regulation. This mechanism is related to Yardstick competition and to behavioral theories of fair pricing.

Suggested Citation

  • Bonev, Petyo & Glachant, Matthieu & Söderberg, Magnus, 2018. "A Mechanism for Institutionalised Threat of Regulation: Evidence from the Swedish District Heating Market," Economics Working Paper Series 1805, University of St. Gallen, School of Economics and Political Science.
  • Handle: RePEc:usg:econwp:2018:05
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    File URL: http://ux-tauri.unisg.ch/RePEc/usg/econwp/EWP-1805.pdf
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    Cited by:

    1. Bonev, Petyo & Matthieu Glachant & Magnus Söderberg, 2020. "Implicit Yardstick Competition," Economics Working Paper Series 2009, University of St. Gallen, School of Economics and Political Science.

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    More about this item

    Keywords

    Regulatory Threat; Monopoly; Price Setting; Spatial Interaction; Natural Experiment;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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