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Product-Market Competition in the Water Industry: Voluntarily Nondiscriminatory Pricing

Author

Listed:
  • Reto F�llmi
  • Urs Meister

Abstract

This paper presents an attempt to create competition in the water market by means of direct competition. We argue that the usual liberalisation device, competition for the market by franchise bidding, is problematic due to the particular features of the water industry. Our approach proposes the implementation of product market competition, i.e. competition in the market. In such a situation several water utilities using a single set of pipes compete for customers in the same area. Since the water industry is often characterised by local networks, we consider a simple model, where competition is introduced between vertically integrated, neighbouring water suppliers that connect their networks. 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. (iii) In contrary to prejudicial claims, investment incentives are not destroyed by the introduction of competition. Investments of low-cost firms may even increase.

Suggested Citation

  • Reto F�llmi & Urs Meister, "undated". "Product-Market Competition in the Water Industry: Voluntarily Nondiscriminatory Pricing," IEW - Working Papers 115, Institute for Empirical Research in Economics - University of Zurich.
  • Handle: RePEc:zur:iewwpx:115
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    References listed on IDEAS

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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. Reto Foellmi & Urs Meister, 2004. "Enhancing Efficiency of Water Supply – Product Market Competition versus Trade," Public Economics 0412012, EconWPA.
    3. 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; 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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