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

Reto Föllmi and Dr. Urs Meister
Authors registered in the RePEc Author Service: Reto Foellmi ()

No iewwp115, IEW - Working Papers from Institute for Empirical Research in Economics - IEW

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.

Keywords: Product-Market Competition; Water; Nondiscriminatory pricing (search for similar items in EconPapers)
JEL-codes: L95 L43 D21 Q25 (search for similar items in EconPapers)
View list of references

Downloads: (external link)
http://www.iew.unizh.ch/wp/iewwp115.pdf (application/pdf)

Related works:
Working Paper: Product-Market Competition in the Water Industry: Voluntary Nondiscriminatory Pricing (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:zur:iewwpx:115

Access Statistics for this paper

More papers in IEW - Working Papers from Institute for Empirical Research in Economics - IEW
Series data maintained by Hanna Britt ().