Spatial price homogeneity as a mechanism to reduce the threat of regulatory intervention in locally monopolistic sectors

Magnus Söderberg and Makoto Tanaka

Working Papers from HAL

Abstract: We claim that a reason for why unregulated investor-owned local monopolies do not always charge the monopoly price is that they are threatened by customer complaints that may lead to retaliations from local elected officials. When investor-owned monopolies are exposed to this threat they will mimic the price(s) of their neighbour(s); the stronger the threat, the higher the spatial price correlation. The threat increases when elected officials have pro-consumer preferences and neighbours are geographically close. The empirical analysis, based on a complete cross-sectional data set from the Swedish district heating sector in 2007, confirms the theoretical predictions.

Keywords: regulatory threat; district heating; Sweden (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-geo and nep-reg
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