Product-Market Competition in the Water Industry: Voluntary Non-discriminatory Pricing

Reto Foellmi () and Dr. Urs Meister

Journal of Industry, Competition and Trade, 2005, vol. 5, issue 2, pages 115-135

Abstract: Since franchise bidding in the piped water industry is problematic due to extensive investment requirements, product-market competition or common carriage is a valuable alternative for the introduction of competition. This paper analyses product-market competition by considering a simple model of interconnection where competition is introduced between vertically integrated neighbouring water suppliers. The model contains water markets specificities such as local and decentralised networks and related difficulties of regulating access charges. 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; and (iii) in contrary to prejudicial claims, investment incentives are not destroyed by the introduction of competition for the market. Investments of low-cost firms may even increase. Copyright Springer Science + Business Media, Inc. 2005

Keywords: product-market competition; water industry; nondiscriminatory pricing (search for similar items in EconPapers)
Date: 2005
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Working Paper: Product-Market Competition in the Water Industry: Voluntary Nondiscriminatory Pricing (2004)
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Persistent link: http://EconPapers.repec.org/RePEc:kap:jincot:v:5:y:2005:i:2:p:115-135

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