Enhancing Efficiency of Water Supply - Product Market Compoetition versus Trade

Reto Foellmi () and Dr. Urs Meister

No 25, Working Papers from University of Zurich, Institute for Strategy and Business Economics (ISU)

Abstract: This paper analyses welfare gains in the piped water industry when introducing competition or trade between local utilities. The connection of neighbouring networks can be used for both, voluntary cross border trade and product market competition by common carriage. Using a game theoretic model we show that common carriage induces stronger production incentives for inefficient suppliers. This implies that production efficiency but also retail price tend to be lower than with trade. The net effect regarding welfare depends on the efficiency differential. At higher cost differentials welfare is higher under competition ? even in a lower bound benchmark case without regulation.

Keywords: Water; Networks; Product-Market Competition; Trade; Bargaining (search for similar items in EconPapers)
JEL-codes: L95 L43 D21 Q25 (search for similar items in EconPapers)
Date: 2004
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Working Paper: Enhancing Efficiency of Water Supply – Product Market Competition versus Trade (2004)
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Persistent link: http://EconPapers.repec.org/RePEc:iso:wpaper:0025

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