Welfare effects of companies’ use of market power through spatial price discrimination: The case of the Swedish waste incineration market

Sef Meens-Eriksson ()
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Sef Meens-Eriksson: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden, https://www.umu.se/handelshogskolan

No 1021, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: General features of waste treatment markets include comprehensive regulations and high fixed capital costs. Hence, firms operating in them have substantial local market power, which is used to mark up prices through spatial price discrimination (Granlund and Meens-Eriksson, 2023). This paper examines effects of waste treatment firms’ spatial price discrimination on Swedish municipalities’ welfare and costs of waste disposal, as well as the associated distributional implications. Results show that the Equivalent Variation is 3.3% of a municipality’s cost for residual waste disposal, on average. Further, the welfare loss disproportionately affects a small number of municipalities, with 10% accounting for 62% of consumer welfare loss. Nearly the entire loss in consumer welfare is redistributed to firms. Considering political ambitions to transform the waste management sector, an alternative scenario is simulated, involving closure of the smallest 20% of waste incineration plants. This would increase the disposal cost for about a quarter of municipalities, and the negative welfare effect within this group would be 12% of their cost of waste disposal.

Keywords: Spatial price discrimination; welfare effects; equivalent variation; waste economics (search for similar items in EconPapers)
JEL-codes: D43 D60 L11 L13 Q53 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2024-02-03
New Economics Papers: this item is included in nep-com, nep-env, nep-ind and nep-ure
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